SHANGHAI, Oct. 29, 2021 /PRNewswire/ -- Cango Inc. (NYSE:
CANG) ("Cango" or the "Company") is issuing a bi-monthly industry
insight publication called "CANGO Auto View" to bring readers,
drivers and passengers up to speed on the automobile market's
emerging trends.
Below is an article from the Company's 5th edition for
September 2021.
Chip Shortage Affecting Auto Production and Sales
The widely-publicized global semiconductor chip shortage brought
about by the Covid-19 pandemic is causing disruptions across all
industries, including auto production and sales. The chip shortage
has persisted since early 2020, but the most recent wave in
July 2021 has proven especially
challenging for automakers. Both conventional fuel and new energy
vehicles require a stable supply of semiconductor chips. NEVs are
particularly chip-hungry given their higher degree of electronics
adaption and intelligence, as well as greater number of onboard
cameras and sensors. According to the China Association of
Automobile Manufacturers' (CAAM) preliminary estimates, in 2022,
traditional fuel vehicles in China
contain approximately 934 chips per vehicle, while NEVs contain
approximately 1,459 chips per vehicle.
According to relevant data, SAIC Volkswagen, SAIC-GM,
SAIC-GM-Wuling, SAIC Motor Passenger Vehicle, GAC-Honda,
GAC-Toyota, GAC Fick, GAC Mitsubishi, Dongfeng Honda, Dongfeng
Nissan and Dongfeng Liuzhou Motor all reduced production by
varying degrees in July 2021. GAC
Fick suffered the largest loss with a 94% decline; SAIC Volkswagen
and Dongfeng Honda both experienced
a decline of more than 50%; and GAC-Honda and GAC Mitsubishi both
reduced production by more than 40%.
Sales of various auto brands clearly reflected this insufficient
production capacity. Volkswagen's domestic market share fell below
10% (9.64%) for the first time in July
2021, while Toyota, the runner-up, was only 60 bps behind.
Dongfeng Honda and GAC-Honda were
both squeezed out of the top ten auto companies in sales. Sales of
GAC Fick, which suffered the greatest production reductions,
dropped by a whopping 82%!
July 2021's mismatch between production and sales may be just
the tip of the iceberg. Since the second quarter of 2021, domestic
car sales have declined for several consecutive months,
illustrating that the automotive chip shortage is no longer a
short-term problem. As early as December
2020, SAIC-VW and FAW-VM were both forced to halt production
because of chip shortages. On June 10,
2021, the Central Finance and Economics Committee revised
its opinion on the automotive chip shortage, which has now resulted
in production reductions totaling nearly three million vehicles.
With this latest wave of chip shortages, domestic car companies
will likely be facing a disconnect between production and sales for
the foreseeable future.
NEV brands, led by Li Auto, NIO and Xpeng in recent years, were
also victims of the crisis. According to their August sales data
released on September 1, 2021, Li
Auto remained in first place, followed by Xpeng. However, NIO,
which suffered a devastating double blow to its production due to
the chip shortage, was replaced by HOZON Auto in the top three. One
of NIO's suppliers, Nantiao Quanxing, is located in a high Covid
risk area in Nanjing and was
forced to shut down its factory in August
2021. Because Nantiao Quanxing is the sole supplier of A and
B-pillar interior panels for NIO's ES6 and EC6 models, its shutdown
badly affected NIO's production. In addition, STMicroelectronics, a
supplier of Bosch ESP, reduced production due to the pandemic
situation in Malaysia. This in
turn affected Bosch's supply to NIO ESP. Following a sales decline
in July 2021, NIO's August sales hit
a new low of just 5,880 total sales, down 25.8% from the previous
month.
According to Shen Yanan,
co-founder of Li Auto, the widespread chip shortage may continue
through the end of this year or the beginning of next year. To deal
with this situation, Shen said that Li Auto communicates with
suppliers daily. Given continued growth in the number of orders, Li
Auto will face some chip pressure, but Shen believes that the
company is very flexible in terms of timely adjustments.
Dealer Challenges
Overall, the chip shortage has placed relatively lighter burdens
on dealers in comparison with OEMs. However, they are still facing
unique challenges. According to certain brands' salespeople,
although chip shortages have led to "stock-out" of some popular
models, inventory pressure on manufacturers has abated. At the same
time, as consumers tend to favor highly sought-after products, the
chip shortage has stimulated car purchases somewhat as consumers
compete for a limited supply of the most popular models.
According the latest FAW "China Auto Dealer Vehicle Inventory
Alert Index Survey" released by CADA, the Vehicle Inventory Alert
Index (VIA) dropped by 1.1% year-over-year to 51.7% in August.
Although it is still above the 50% official warning threshold,
inventory pressure may continue to decline during the "Golden
September and Silver October" peak sales season, given the chip
shortage's influence on production as well as increasing adoption
of China's "price protection"
policy.
The chip shortage has affected the sales of promotion-oriented
models most severely, as dealers set low prices for these models to
increase sales volume but lack sufficient supply to meet demand.
Dealers depend upon high sales volumes for these models to maintain
healthy cash flow. Compounding the cash flow problem for dealers,
rents for automotive retail space can reach RMB100,000 or more per month in some tier-1 and
tier-2 cities, eating up their cash reserves. Delivery delays of
some mainstream JV brands further added to dealers' cash flow
management issues.
Increased Orders for Auto Parts Companies
There is a bright side to this story – auto parts companies are
seeing a huge uptick in orders. According to the latest statistics
released by the General Administration of Customs, exports of auto
parts between January and August 2021
reached RMB316.58 billion, up by
34.6% year-over-year, and grew by nine times compared to export
volume (RMB31.22 billion) during the
same period of 2019. Although the chip shortage and the drop in
global auto sales has resulted in shrinking demand from traditional
OEMs for auxiliary parts, demand is surging in the NEV market and
the repair and maintenance market.
Zhengdian Finance of CCTV recently interviewed Kong Chenhuan,
General Manager of Zhaofeng Mechanical and Electronic, a hub
bearing company in Hangzhou,
Zhejiang. Kong said that orders
have grown by over 80%, occupying the company's production capacity
for the next three months. He attributes this strong growth
(particularly in the second half of the year) to the recovery of
previous orders, as well as the relatively low inventory level in
the overseas end market. Huida Machinery Manufacturing, located in
Huzhou, Zhejiang, is also busy
producing aluminum auto parts such as steering gears. As their
orders continue to grow, Huida has consolidated and expanded its
production lines and added three automated production lines,
increasing its production efficiency by 30%.
Although the chip shortage and the drop in global auto sales has
resulted in shrinking demand for auxiliary parts from traditional
OEMs, the demand is surging in the NEV market and the repair and
maintenance market.
Yang Fudong, assistant to the secretary-general of the
After-sales Parts Branch of the CADA, said that there are actually
fewer auxiliary OEMS because of the decline in car sales and the
changes in parts due to the industry shift towards new energy
vehicles. With the development of new energy vehicles, parts such
as chassis, motors, batteries, and electronic controls are in
greater demand. In addition, demand for after-sales service is high
and is expected to increase as NEVs age and the overall penetration
of automobiles in China grows.
Profitability During the Crisis
The chip crisis and price increases in raw materials have
affected revenues and profits across the auto industry,
particularly in the auto parts industry. Due to price increases in
raw materials, production costs have increased by about 30% for
certain domestic auto parts companies. Facing this upstream
pressure, automakers, auto parts companies and dealers have
developed various strategies to cope with the crisis and remain
profitable.
Tesla was one of the first companies to take action. In
May 2021, Tesla announced on its
official website that it would raise the prices of its Model 3 and
Model Y by USD500 (approx.
RMB3,200) in some parts of the U.S.
This was Tesla's fifth such price hike announcement. In
March 2021, Tesla China announced
that it would raise the price of Model Y by RMB8,000, due to the increase in manufacturing
costs. Tesla also said that they are considering acquiring a chip
factory to resolve their chip shortage issues.
Tesla is not alone in planning ahead. When early signs of raw
material price increases began to emerge in 2020, some auto parts
companies signed fixed-rate supply agreements with raw material
suppliers both domestically and abroad and have enjoyed the
benefits of protection from this year's huge price increases.
Certain other parts companies swiftly responded by buying excess
raw materials at low prices and storing them for future use,
effectively reducing production costs as prices began to climb.
The increase in raw materials affected OEMs, dealers and parts
suppliers to different extents each of whom coped with the
situation in their own ways. Meanwhile, the second-hand car market,
which already showed huge potential, is likely to be showered with
a new round of growth.
At the monthly analysis meeting of CADA on September 1, 2021, Qiu
Kai, director of the Industry Coordination Division, pointed
out that September opens the traditional peak season for car sales.
Despite reduced automobile production capacity, consumer demand
remains strong, which should create a sellers' market during
September and October's Golden sales season. The huge discounts
commonly offered during this season are unlikely to be available
this year. However, despite growing demand for automobile
consumption, the tight supply of chips has resulted in low
inventory of certain best-selling models. Non-urgent car buyers
might postpone their car purchase plans to wait for their desired
model or features, potentially causing sales in September to fall
short of expectations.
With production and sales seriously mismatched in the new car
market due to the chip shortage, the domestic used car market has
recorded substantial growth since the beginning of 2021. From
January to July this year, accumulated used car sales reached
9,893,300 units, representing a year-over-year increase of 45.96%
and an increase of 22.5% compared to the same period of 2019. This
market already showed huge potential and as the Golden sales season
begins, stronger car consumption demand and limited new car
availability may drive a new round of growth.
The worldwide chip shortage is a serious problem for the auto
industry, with no end in sight. However, auto makers, parts
manufacturers and dealers are rising to the challenge with
innovative solutions and strategies to maintain profitability.
About Cango Inc.
Cango Inc. (NYSE: CANG) is a leading automotive transaction
service platform in China
connecting dealers, financial institutions, car buyers, and other
industry participants. Founded in 2010 by a group of pioneers in
China's automotive finance
industry, the Company is headquartered in Shanghai and engages car buyers through a
nationwide dealer network. The Company's services primarily consist
of automotive financing facilitation, car trading transactions, and
after-market services facilitation. By utilizing its competitive
advantages in technology, data insights, and cloud-based
infrastructure, Cango is able to connect its platform participants
while bringing them a premium user experience. Cango's platform
model puts it in a unique position to add value for its platform
participants and business partners as the automotive and mobility
markets in China continue to grow
and evolve. For more information, please visit:
www.cangoonline.com.
Media Contact:
Juliet Ye
Cango Inc.
Tel: +86 21 3183 5088 ext.5581
Email: pr@cangoonline.com
Twitter: https://twitter.com/Cango_Group
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SOURCE Cango Inc.