AUTOMOTIVE

Any hopes that the automotive industry would return to normal— whatever “normal” means these days—in 2021 were dashed almost as soon as the new year arrived. The microchip shortages that stalled manufacturers’ restarts after the COVID-19 pandemic’s first, chaotic wave in 2020 continued to plague the industry in 2021, costing OEMs an estimated $200 million in lost revenue. Shipping bottlenecks, container chaos, and shortages of key inputs such as magnesium and butadiene contributed to a production shortfall of some 7.7 million units.

Manufacturers of electric vehicles (EVs) struggled with supply problems of their own, namely tight stocks of the lithium and cobalt needed for automotive batteries. And labor shortages across the industry—from warehouses to assembly lines to, crucially, supply-chain departments— crimped production, extended delivery times, and increased costs. The burden landed especially hard on automotive suppliers, many of whose contracts with OEMs contained no provisions for sharing or passing along higher costs.

Yet despite the seemingly endless obstacles to full recovery, the automotive industry staged an impressive bounce-back in 2021, with margins expanding sharply from 2020’s depressed levels. China and the U.S., the world’s largest auto markets, led the industry’s recovery, as sales in both countries returned to pre pandemic levels. The rest of the world is recovering at a somewhat slower pace, with the Middle East and Eastern Europe on course to fully emerge from their troughs in 2022. Western Europe and Latin America may not match 2019’s sales numbers until 2023, and the comeback could be further delayed by efforts to contain the Omicron variant that emerged late in 2021.

If current trends hold, EVs will remain the industry’s star performer. The category was the clear sales-growth winner in China and Europe, where adoption rates are highest, while U.S. EV sales made strong gains that seem likely to persist, albeit at a slowing rate, in 2022.

Active government intervention will continue to be a key driver of EV sales, as more stringent emissions standards and government-led investment programs nudge both drivers and manufacturers toward adoption. Higher sticker prices for both conventional and electric vehicles, however, may restrain sales growth, in addition to concerns in many territories regarding the robustness of charging infrastructures. OEMs and suppliers will face crucial decisions about whether to go all-in on EV production or shift a significant share of their conventional-vehicle manufacturing to developing markets, where emissions standards are not as restrictive as in the developed world.