Volkswagen Sees Global Chip Shortage Worsening in Second Half

The Wall Street Journal

July 9, 2021

 Volkswagen AG VOW -1.11% warned that the global shortage of semiconductors affecting car production would worsen over the next six months, joining a chorus of auto companies that have dialed down their outlook for the rest of the year.

The warnings mark a shift for the industry after auto CEOs and industry analysts had predicted the chip crisis would bottom out in the second quarter, leading to a gradual improvement over the next six months.

“The impairment from the shortage of semiconductors has shifted and will more likely lead to impairments in the second half of the year,” Volkswagen said in a statement on Friday.

AlixPartners, a global industry consulting firm, predicted in January that the chip shortage would cost global auto makers $61 billion in lost revenue this year. But in May, AlixPartners revised its projection upward to $110 billion.

The firm said that overall auto makers are expected to sell about 80.7 million new cars this year, down from an earlier estimate of 84.6 million—a loss of about 3.9 million unit sales world-wide as a result of the chip shortage.

In China, the world’s biggest car market by sales, the chip shortage broke an 11-month growth streak in new-car sales. The China Passenger Car Association said Thursday that new-car sales in June of 1.58 million vehicles were down 5.1% from a year earlier, largely due to supply shortages.

BMW said last week that it had produced 30,000 fewer vehicles than planned this year due the shortage and told reporters that it would be difficult to maintain its previous outlook for an improvement in the second half.

Renault SA Chief Executive Luca de Meo told Bloomberg News recently that the shortage was a structural problem that would continue through next year. And Daimler AG , maker of Mercedes-Benz cars, said “the shortage is expected to continue to impact the upcoming two quarters in terms of sales.”

Ford Motor Co. reported last week its June sales in the U.S. dropped 27% from a year earlier amid the chip shortage and that it would have to curtail production at more than a half-dozen U.S. factories in July as a result.

Volkswagen issued its warning as it posted operating profit of 11 billion euros, equivalent to $13.03 billion, in the first six months of the year, after a loss of €1.49 billion last year in the throes of the pandemic lockdowns.

The company, whose brands include VW, Seat, Skoda, Audi and Porsche, was able to mitigate much of the impact of the chip shortage by shifting supplies to more profitable models, a spokesman said.

The German auto maker posted strong first-half sales in Europe, where it tends to earn higher margins on new-car sales than in other parts of the world, the spokesman said, adding that the outlook for the second half was weaker because of the worsening chip crisis.

Volkswagen also said on Friday it had extended Chief Executive Herbert Diess’s contract until late 2025 in a move that settles a long-simmering dispute between the executive and his internal critics and throws the full weight of the company’s main shareholders behind his drive to accelerate the shift to electric cars. His current contract was to expire in April 2023.

Volkswagen is currently pursuing a strategy to roll out standardized electric-car technology across its brands to build millions of vehicles each year by the end of the decade. The company has laid out a plan to build at least six battery factories in Europe alone, with additional plants earmarked for China and the U.S.

Industry analysts have praised the strategy, but warn that auto companies like Volkswagen would soon face a severe shortage of battery materials if demand for electric cars accelerates and the companies actually ramp up production to meet that demand.