Today, $TSLA announced that in the third quarter it sold 241,300 vehicles globally, up 73% year over year (YoY) and 20% quarter over quarter (QOQ). Meanwhile, $GM blamed the ~33% YoY decline in its US sales on chip shortages. What? #EVs require 3-5x more chips per car produced!
In @ARKInvest’s view, traditional auto manufacturers have been building chip inventories since April when their US sales peaked at more than 18 million units and then dropped more than 30% (65% at an annual rate!) over the next five months to 12.2 million in September.
Addressing the chip shortages in the last two weeks, the Biden Administration has threatened to invoke a traditional war-time measure, the Defense Production Act, which would force companies to disclose supply chain information, including chip inventories.
We would not be surprised to see chip supplies loosen up considerably, perhaps turning the problem from a shortage into a glut given the weakness in gas-powered auto demand. @elonmusk, $AMD’s Su, and $GM’s Carlisle are on record saying chip supply constraints are easing.
Chips are not alone. After the disproportionate spending on goods that caused shortages before vaccinations became available this spring, the shift to spending on services could transform other commodity shortages into gluts, pushing prices down and dissipating inflation fears.
Since spring, prices of lumber have dropped 64%, iron ore -51%, DRAM chips -20%, and copper -15%. When companies build inventories in anticipation of demand that does not materialize and inventory losses threaten their financials, they sell, exacerbating the price declines.
Back to the #auto industry, the inventory glut is not on dealer lots: auto manufacturers have only 17 days of supply in the pipeline, much lower than the normal 60+ days. As is the case for many goods that we stocked during the last year, the inventory is in homes and garages.
Because consumers bought new and used cars to avoid mass transit during the past year, the V-shaped recovery in autos was more dramatic than that after most of the more prolonged recessions during the past 50 years.
As mass transit and ride-sharing continue to recover during the next year or so, many consumers could conclude that they have prepaid too much for transportation in the form of those extra cars.
By the time autos recover strongly, if @skorusARK’s analysis is correct, the sticker prices of #ElectricVehicles will be at or below those of like-for-like gas powered vehicles, suggesting that traditional auto companies will have to transform from ~95% gas to majority electric.
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