Chip Shortage Continues into 2022
As everyone is aware, there has been a massive chip shortage during the entire pandemic, rocketing used car prices up, and causing new cars to be shipped without tech that is typically included in the base price of the vehicle.
It has been reported that the average chip supply is currently at 33 days across the industry. Companies like Kia, Honda, Toyota, and Subaru have been sitting between 17-20 days supply.
Something interesting is we have not heard much of anything from Tesla regarding the chip shortage. Tesla pivoted a while back to start using different chips that were not affected by the shortage nearly as much. Tesla has been known for not using “Automotive Grade” equipment in their cars. It has bitten them in the past with their touch screens, but it seems to be benefiting them during this shortage!
While it has been reported that chip supply continues to get better and the hope is some of that production can be moved to the United States to further quicken the move back to normalcy, It has yet to be seen in terms of car prices.
The next question for me would be why we haven’t seen other companies pivot as Tesla did? One answer could be the quality standards set by other companies (Tesla’s are known to be not of the highest quality). Another could be the sheer production numbers of other companies. Regardless of the chip used, other car manufacturers could still have issues.
I’d be interested to see where this goes as time goes on, but as it sits, most experts in the industry don’t expect full production to return until 2023.
Mercedes V8s
Back in August, Mercedes announced a halt in the production of V8s. With it came a sharp increase in the price of G63s, C63s, and really every other V8 AMG Mercedes has to offer.
Since then, we haven’t heard anything from Mercedes in terms of reversing this decision. What we have heard, however, is the next C63 possibly being a 2.0L Turbo with an electric component - giving it the performance of the V8, but certainly without the drama of the V8.
It has been said that other AMG models will still provide you with a V8 motor and will be for some time - so long as the demand is there.
Let us look at this from the used car market perspective. This certainly increases demand for cars such as the 2015-2022 C63 and the others that will switch to this powerplant. It also increases demand for new cars that still are offered with the V8.
Outside of Mercedes, customers that would otherwise buy a Mercedes like the C63, might move over to BMW, Audi, or Alfa Romeo - causing an increase in demand there.
Big changes like this often have effects bigger than we can initially see, so be on the lookout for this!
Economy/Market’s Effect On Car Market
Let’s look at this from another angle. This January we have seen a massive change in direction of the stock market. -1-2% days has become the norm as Jerome Powell has continued to threaten 10 YR Bond rate hikes.
During times like these, the majority of people’s first response is to stack cash in anticipation of a recession or a fantastic buy opportunity in the market.
This takes people away from the car market, decreasing demand across the board.
Looking at a simple supply & demand curve, the point in which the supply and demand intersect is what determines what people will pay for cars.
What I’ve talked about so far in this newsletter thus far is supply increasing due to chips being made quicker, companies hopefully pivoting, and work done to bring chip manufacturing to the US. This will move the supply curve to the right.
What I just talked about regarding the economy/stock market, creates less demand for new cars, shifting the demand curve to the left. This results in fewer cars needing to be produced to satisfy the market’s demand - allowing manufacturers to stockpile a bigger chip supply and catch up on previous orders.
Summary
We looked at the supply chain, the economy/stock market, and Mercedes specific effects on supply and demand for cars. Overall I believe this to be a net positive for consumers and we should start to see the prices of vehicles taper in 2022.
Let me know if you agree or disagree in the comments!