Signs that supply shortages are beginning to ease
June was the second consecutive month of growth in UK car production, up 5.6% from last year with 72,946 units built. The positive trend is a sign that industry supply shortages caused by the global semiconductor crisis are on the decline.
However, the cumulative statistics still make for grim reading. British car production fell 19.2% in the first six months of the year, according to figures published today by the Society of Motor Manufacturers and Traders (SMMT), with 95,792 fewer vehicles built compared to the same period in 2021. approximately 403,131 units were produced. built, representing the weakest first half since the pandemic-ravaged 2020 and worse than 2009 when the global financial crisis decimated demand.
The SMMT noted that the main cause continues to be shortages of key components, especially semiconductors, exacerbated by additional supply difficulties due to the war in Ukraine, as well as significant structural and model changes within the sector.
While June was June’s best performance since the start of the pandemic, in part as supply chain shortages begin to ease, production remains 33.2% below 2019 levels.
The decline so far was largely driven by a decline in export volumes, with 23.9% fewer cars being produced for overseas markets in the first half of 2022. This represents a loss of 99,388 units compared to the same period in 2021, despite exports still accounting for 78.6% of all manufacturing output.
While the EU was the largest recipient of UK-built cars, accounting for over 60% of exports, shipments to the bloc fell by 10.6%. Deliveries to the US also fell 56.1%, with the closure of a major UK factory in 2021 having a significant impact. However, production for the British market increased by 4.3%.
The production of battery electric vehicles (BEVs) was another bright spot for the sector, with 32,282 vehicles produced in the first half of the year, up 6.5%. This was bolstered by a 44.2% increase in June, resulting in record zero-emission vehicle production for the month. Production of hybrid, petrol and diesel cars fell in the first half of the year by 19.9%, 8.0% and 60.2% respectively.
The ongoing disruption of global supply chains has led to a downturn in the industry’s production outlook, with 866,000 cars expected this year. While this represents 1% growth from 2021 volumes, it is 113,285 units lower than the March outlook, reflecting the impact of the crisis in Ukraine, lockdowns in China and the severity of parts shortages. Output is set to improve further to 956,575 units by 2023, before exceeding one million units by 2025 as supply chain problems ease.
Despite car production generally declining this year, there is significant investment in UK industry, with more than £3.4 billion announced so far in 2022, mainly for the production and supply chains of electric vehicles. The SMMT said the investment will provide significant boost to the UK and local economies, creating and retaining jobs in a sector critical to the UK’s net-zero target.
Mike Hawes, Chief Executive of SMMT, said: “Automakers have suffered from a ‘long Covid’ for much of 2022 as global component shortages undermine production and put supply chains under extreme pressure. Major model changes and the closure of a major factory last year also had an impact on production, but there are reasons for optimism with production rising over the past two months. As these issues disappear over the next two years, investment in new technologies and processes will be essential, but will depend on our underlying competitiveness. Sky-high energy costs, uncompetitive business rates and skills shortages all need to be addressed if we are to build on our inherent strengths and seize the opportunities presented by the pursuit of low-carbon mobility.”
Chris Knight, UK Automotive Partner, KPMG, noted that cost pressures had an impact on the industry. He said: “The cost of car production has risen due to price increases in raw materials, parts, transportation and energy. Manufacturers have limited ability to absorb additional costs and will pass this on to consumers in the form of higher prices. Consumers are willing to pay a premium for now, as demand for new cars still far outstrips supply, but this willingness may decline as consumer confidence erodes.
“Electric vehicle sales continue to grow and as the demand curve moves up, the UK’s ability to produce EVs on a large scale will be further tested. Globally, the race to scale up electric vehicle production capacity and supply networks is accelerating.”