Due to the lingering energy crisis in Europe, Americans might, among other things, have to pay more to buy European vehicles.
The energy crisis in Europe might, in the worst-case scenario, prevent the continent from producing close to 40 percent or more than 1 million vehicles, per quarter through the end of 2023, according to the auto forecaster S&P Global Mobility. The organization warned that power blackouts or high energy prices might put tremendous pressure on the auto industry's supply chain, which is already under stress from the COVID-19 epidemic and the war in Ukraine, Reuters reports.
“If you look through the supply chain—particularly where there’s any metallic structure forming through pressing, welding, or extrusion—there’s a tremendous amount of energy involved,” Edwin Pope, a principal analyst at S&P Global Mobility, mentioned in the S&P Global Mobility report.
“Total energy usage in these companies could be up to one and a half times what we’re seeing in vehicle assembly today. Anecdotally, we’re hearing that some of this manufacturing capacity is becoming so uneconomic that companies are simply shutting up shop,” Pope added.
According to the report, the car manufacturing costs have already grown to between €687 (about $664.44) and €773 (about $747.61) per automobile, up from €50 (roughly $48.36) before the energy crisis, extensively pressuring smaller suppliers. Reuters also draws attention to a section of the report that states S&P Global Mobility predicted quarterly production from European auto assembly factories will be between 4.3 million and 4.5 million units starting this quarter and lasting until the end of next year. However, automakers could reduce that number to 2.75 million from 3 million units per quarter because of government mandates to cut back on electricity use and excessive utility rates.
Even though some automakers like Tesla have navigated the chip shortage and supply chain crisis better, European automakers don't appear to have had the same success. Last January, only 680,000 new automobiles were registered throughout the European Union. This represented a historic low for the first month of the year, dating back to the early 1990s, when the European Automobile Manufacturers' Association (EMEA) first began tracking these figures. Large declines in registrations have been recorded in France and Italy, with 18.6 percent and 19.7 percent respectively.
According to the research arm of the Allianz insurance group, the semiconductor chip shortage has costed the auto industry €100 billion. However, there is some good news on the horizon: the chip shortage has toned down after almost two years. With that being said, a second crisis struck the already struggling European automobile industry, forcing automakers to deal with the supply chain problems caused by the lockdowns in Shanghai. And just as things seemed to be settled down, the war in Ukraine broke out. Evidently, the European auto sector is undoubtedly experiencing many crises at the same time.
During the COVID-19 pandemic, the French government has invested €278 million ($269.6 million) towards the modernization and diversification of 303 automotive businesses, the majority of which are small and medium-sized enterprises. It also created an automotive-industry support plan, according to Autovista24. Elsewhere, Germany has extended its subsidies for EVs until 2025. And in 2020, it announced an additional €3 billion for the national car industry because it was struggling. Furthermore, Berlin declared that it would spend over €300 billion ($294 billion) to assist millions of individuals and businesses in coping with the rising cost of energy.
CNN reports that the government may borrow up to €200 billion ($196 billion) to pay for that support. Meanwhile, Italy announced it was allocating €650 million ($630.4 million) in annual aid for the car industry from 2022 though 2024. Without a doubt, European governments will continue with their efforts to curb the impact of the ongoing crisis. This means that they will offer further assistance to the automotive industry, even though that won't stop the energy prices from skyrocketing.
As for the European automakers, they will ultimately decide to shift production or some manufacturing operations from Europe to emerging markets where energy prices are more reasonable. A September survey conducted by VDA, Germany’s automotive industry association, found that 85 percent of automakers view the country as an uncompetitive location because of high energy prices and inconsistent supply. Just 3 percent of companies said they plan to invest in the country, whereas 22 percent want to shift their investments abroad.
On a separate note, all automakers will try to reduce their energy usage, but few will succeed. According to Fortune, Stellantis, for example, is already looking into innovative ways to produce its own electricity through solar panel arrays. This way, the group would reduce expenses without compromising output.
Consumers should expect considerable MSRP hikes as production costs and raw materials prices rise. Additionally, automakers will phase out of production some less popular automobile models, and they will shift their focus to the more sought-after and pricey models. This implies that the shortage of inventory will worsen and dealers will struggle to bring new models into their stores.
Another issue that might arise is bidding wars between dealerships, as they will compete for access to inventory. Naturally, this will also increase the MSRP, which will ultimately result in the consumer paying too much for a European vehicle.
Eugenia Akhim is a luxury car aficionado. She naturally gravitates towards the legendary 911 and the classic Ferrari because they are fun to drive and have a killer aesthetic. In her column, expect to read more about turbo-powered vehicles.
