Automotive Insights - May

By: Paul Sedor

U.S. Vehicle Sales Surge Past Expectations Once Again

U.S. vehicle sales rose 3.1% month-on-month (m/m) in April, increasing to 18.5 million (SAAR) units, defying consensus expectations for a modest pull-back to 17.6 million.

Unadjusted volumes totaled 1.51 million in April, 111.4% above year ago levels, which would have represented the peak shutdown period due to COVID-19 restrictions. Relative to April 2019, sales were up a healthy 13.9%.

Passenger cars (+5.1% m/m) saw stronger growth than light trucks, which still posted a +2.4% gain on the month. Light trucks accounted for 77.6% of sales in April, down 0.2 percentage points from its share a year ago but still 6.8 percentage points higher than April 2019.

This has taken the six-month moving average to 16.8 million, just shy of the pre-pandemic 16.9 million reading in February 2020. 

The picture continues to be one of robust demand with consumers making purchases that were delayed by the pandemic. The broader economic recovery has been bolstered by a successful vaccination campaign and large fiscal transfers, and we expect consumer demand is unlikely to slow in the immediate term, as pent-up demand for new cars from 2020 still remains. Moreover, strong appreciation of used vehicle prices (+26% year-over-year) means trade-in values are supportive of vehicle upgrades as well.

While things look pretty good for consumers, product availability may emerge as a key risk to the outlook as inventories continue to be drawn down amid ongoing production shutdowns. Light vehicle inventories were down 10% month-over-month in March as semiconductor and other input shortages continue to affect production. Continuing work stoppages in April mean production projections for the second quarter are now 4.8% lower than they were in March. The dearth of supply has helped drive inventory-to-sales ratios close to historic lows, and with chip shortages potentially stretching into the third quarter of 2021 supply could be the deciding factor for how long this sales pace can be sustained.   

EV News - Ford is increasing its investment in its electric vehicle future to $30 billion by 2025, up from a previous spend of $22 billion by 2023. The company announced the fresh cashflow into its EV and battery development strategy, dubbed Ford+, during an investor day on Tuesday. 

The company said it expects 40% of its global vehicle volume to be fully electric by 2030. Ford sold 6,614 Mustang Mach-Es in the U.S. in Q1, and since it unveiled its F-150 Lightning last week, the company says it has already amassed 70,000 customer reservations. 

Early May Forecast:  May Sales Forecasted up 36% over 2020

Truecar forecasts total new vehicle sales will reach 1,509,221 units in May 2021, up 36% from a year ago and even with April 2021, when adjusted for the same number of selling days. This month's seasonally adjusted annualized rate (SAAR) for total light vehicle sales is an estimated 16.2 million, bouncing back from 12.1 million SAAR in May 2020. Excluding fleet sales, TrueCar expects U.S. retail deliveries of new cars and light trucks to be 1,379,623 units, an increase of 35% from a year ago and an increase of 2% from April 2021, when adjusted for the same number of selling days.

Semiconductor Shortage Latest Updates

As the auto integrated circuit (IC) crunch reached a crisis point earlier this year, the industry scrambled for new solutions. Intel announced plans to re-enter the foundry business. TSMC, meanwhile, said it plans to spend a total of $100 billion over the next three years. And on April 28, UMC announced plans to expand capacity for its 300mm Fab 12A Phase 6 (P6) in Taiwan’s Tainan Science Park.

Recovery in automotive IC capacities may take a lot longer than expected. Any new fabs being built now likely would not come online and produce effective yields for nearly two years, but TSMC actually has some fabs in Taiwan that are coming online this year, noted Adrienne Downey, Semico’s director of research.

“We think the shortage is going to last through this year and into early next year,” noted Jim Feldhan, president of Semico Research. The production of critical goods  “It’s hard to pin an exact date, but it could go into mid-next year. The real kicker is how well the current fabs execute this year, because it seems like every year there is a bit of process and yield improvement, so they get more chips out. But if the shortages make it so that the OEMs can’t make as many products as the market is demanding, then that demand will shift. The more that happens, the longer we’ll see the shortage be with us. When push comes to shove, I would say it will go through April of next year. – Semiconductor Engineering

Sources: Automotive News, Reuters, IHS, Edmunds, WardsAuto, LMC, Autoblog, EconomicsTD        Paul Sedor: 5/26/2021