Increasing impact of semiconductor shortage on Medium and Heavy Commercial Vehicle OEMs in Europe

As conditions facing medium and heavy commercial vehicle manufacturers in Europe have deteriorated, following our August forecast release, the contours of a revised industry outlook are emerging. The proximate trigger for the latest shifts is the summer's spate of plant stops by semiconductor manufacturers in Malaysia due to COVID-19. In recent weeks, several European OEMs moved from managing production lines within the constraints of semiconductor availability to having to stop production lines altogether as the supply dried up. Up to 40,000 trucks (above 6 ton GVW) will not be produced in the third and fourth quarter in Europe as a result, IHS Markit calculates, and production is not likely to be made up in 2022 either. Current expectations are that semiconductor shortages will continue at least through the first half of 2022.

The impact of semiconductor availability on the industry remained muted early in the year, but grew heading in to the summer months. In the first quarter of 2021, Europe's OEMs saw and felt the constraints, but only Volvo had to close its plant in Ghent, Belgium, for a week in February. The second quarter also saw the Volvo Group with its brands Volvo Trucks and Renault Trucks being the main ones affected as it had to close for 4 out of 12 weeks. Furthermore, Ford Otosan in Turkey moved its vacation period from summer to 30 May to 13 June. Other OEMs like DAF and MAN produced unfinished trucks that were parked off-site till the arrival of the missing parts.

With the return from summer vacation, it was expected that the situation would improve. Instead, it deteriorated, as the shortage became more pronounced with the halt of semiconductor production in Malaysia. Most visible was Scania, which had to stop production for 1-2 weeks right after returning from plant holidays, after having taken an extra week of plant vacation to begin with. CEO Christian Levin mentioned in a TV interview that daily losses represented some 500 trucks. Also MAN and Mercedes-Benz informed their suppliers that they had to stop production. For its part, MAN production in Austria was expected to run only at 50% for the last three weeks of September. MAN Germany was also running at a lower level. At the Mercedes-Benz plant in Wörth, Germany, several major product lines were stopped, while Unimog continued. Finally, Volvo also had to shutdown another week in the current quarter, even though availability of semiconductors for them improved compared to the second quarter.

Despite the high order books and the high demand, IHS Markit expects sales to slow as inventories are low and production stops occur. Traton CEO Matthias Gründler confirmed that a relative decline in sales for their brands MAN and Scania was already visible from the end of August and would continue for the rest of the year.

Our assumptions for the next forecast update have shifted. For the last quarter of 2021, we now expect the situation to remain difficult for most of the OEMs. In particular, the introduction of planned additional shifts and increasing line rates will not materialize. OEMs will have to manage with stop days and potentially longer Christmas holidays in December, as the visibility on semiconductor availability is very short.

As semiconductors have a long lead time, from order to delivery, we will also downgrade the first half of the year of 2022 in our next forecast compared to the previous outlook. To make up for the lost volumes in 2021 and 2022, we forecast that production in Europe will see faster acceleration in the following years, 2023 and 2024.

Even so, not every manufacturer faces the challenge to the same degree. Based on recent production actuals, there are also two major OEMs that have not suffered from the shortages: Iveco and KamAZ, both of which have been ramping up their production during the year. Also the bus segment seems unaffected, as it is still experiencing low demand due to the late roll-out of vaccination programs across Europe.

Posted 28 September 2021 by Christiane Stein, Associate Director, Global Heavy Truck Research, IHS Markit