Renault warns of tough year ahead for auto makers following chip shortage

PUBLISHED BY
Anna Domanska



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3 months ago




Renault has warned that a global chip shortage will affect automobile production for 2021.

The pandemic, the Texas winter storms, and a fire in a Japanese plant owned by Renesas Electronics, one of the world’s biggest makers of chips for the automotive industry, have all upset any predictions for this coming year. Renault has shied away from putting any production forecast for this year.

Renault recorded a loss of €8bn in 2020 and expects the sluggish demand and the global microchip shortage to continue affecting the industry.

Renault’s overall sales fell 1.1 percent in the first quarter and it expects that production would be cut down by over tens of thousands of cars.

Renault HQ in Boulogne-Billancourt, France. (Image credit: Gudea Rares / Shutterstock)

“Two months ago we said we think the peak will be in the second quarter, but we think there will be a lingering effect in the third quarter if not further,” said Clotilde Delbos, the finance head of the company. 

Car productions have been hit across the world due to a chip shortage and the diverting of supplies to consumer electronic goods that saw an explosion in demands during the pandemic year. The lockdowns forced people to operate from home, which led to increasing demands for smart gadgets to stay connected.

Manufacturers such as Ford and Daimler have extended plant closures and part-time working for staff in recent days because of shortages of chips and other parts. 

“The global supply chain for semiconductors as well as for other components remains very unstable and the uncertainty . . . is high,” said Volvo Group chief executive Martin Lundstedt. Volvo’s Renault’s first-quarter sales were hit by the chip shortage. The group is concentrating on its most profitable vehicles in key markets outside Europe, such as the Kiger SUV in India and the Dacia Duster in Russia. 

Currency fluctuations have exacerbated the situation. It also warned of “headwinds” from current supply chain bottlenecks, raw material costs and part shortages that is affecting the manufacturers further.

Sales in the same period a year earlier fell to €10.1bn from €12.5bn in the first quarter of 2019. 

Renault recently announced a turnaround plan under the new chief executive Luca de Meo, following €8bn of losses during 2020

Renault plans to cut factory capacity, overhaul its brand by concentrating more on diversity and new technology. The French carmaker will scrap revenue and market share targets and focus only on operating margins, cash flow and return on investments. The CEO announced a strategy to increase cost savings by 50 percent from €2bn to €3bn by 2025, while lifting profitability targets. Under the plan, Renault will cut factory capacity from 4million cars to 3.1m cars by 2025. 

Nearly 15,000 jobs will be cut down. Renault announced the sale of its 1.5 percent stake in Daimler for roughly €1.2bn last month.

More than 670,000 fewer cars will be produced in the first quarter of the year as a result of the shortages, according to research by data provider IHS Markit. The report further says that the supply bottleneck may last till the second half of 2021.

About 70 percent of the world’s supply of semiconductor chips are made by a single company — Taiwan Semiconductor Manufacturing Company (TSMC).  The shortage even led to Germany’s economy minister, Peter Altmaier, appealing to his Taiwanese counterpart Wang Mei-hua, to intervene on behalf of carmakers.

 Other countries, including Japan and the US, have urged Taiwan to help ease the shortage.

An alternative being considered by all carmakers is to go local and source the same from within the country. Altmaier’s has also said that the government will invest more in homegrown chipmakers to avoid future crises. Volvo Cars boss Samuelsson said it was ‘very difficult to predict what happens in the semiconductor supply chain beyond four weeks.”

However, Reinhard Ploss, chief executive of Germany’s Infineon, one of the largest semiconductor manufacturers in the world, said that while the industry would “need to think again” about auto supply chains, there was a limit to how long chips could be stored in a stockpile. Ploss said, “ Semiconductors have an expiration date, and at some point we can’t continue to use them because of quality considerations”.

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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