The automotive industry has evolved over the last several decades, shifting from a focus on mechanical advancements to incorporating complex electronics.
Environmental concerns and the urgency of addressing climate change have largely driven this movement.
While the move away from fossil fuel dependency to electric vehicles (EVs) seems obvious in reducing carbon emissions, it has not been without its roadblocks, with EV adoption moving at a slower pace than anticipated by experts in recent years. These unexpected consumer preferences, combined with a saturated seller's market, might explain the volatile sales some car manufacturers are facing.
EV sales are not the only focus for vehicle and electronic manufacturers. Microchips are prevalent in all modern vehicles, whether powered by a combustion engine or electricity. A symbiotic relationship exists between vehicle manufacturers and the EMSs (electronics manufacturing services) producing their chips. If any category of vehicle sales declines, it creates a ripple effect that impacts all participants in the supply chain and can result in high levels of excess stock
So, what factors have really shaped the current automotive market conditions? What are our predictions for the near future? And what can you do about excess parts that were over-forecasted to meet perceived demand? Keep reading to find out.
The COVID-19 effect on the automotive industry
The COVID-19 pandemic, geopolitical tensions, and natural disasters have disrupted global supply chains and closed down factories for both vehicle manufacturers and the plants producing critical components and PCBs (printed circuit boards) needed for all vehicle types, not just EVs.
All-in-all, these conditions created a perfect storm, resulting in extended lead times and some buyers waiting several years for their new cars. Despite this, electronic car registrations increased 41% in 2020, even though global car sales dropped by 16%.
The early pandemic EV gold rush can be attributed partially to:
- Increased climate change awareness
- New government incentives and regulatory frameworks like the ZEV (zero emission vehicle) mandates
- Technology improvements
- Higher sales prices to capitalise on the demand.
During the COVID-19 pandemic, many manufacturers inflated demand projections and over-forecasted their purchasing requirements. In reality, the rush to increase EV production outpaced realistic consumer demand, which slowed as the world emerged from the pandemic. This pivot led to huge quantities of excess and obsolete (E&O) parts, particularly electronic components.
Fast-forward to 2024, and the automotive sector has never truly gotten back to the demand of the early pandemic. Sales of all types of cars rose by 10.4% in March 2024, marking the best March performance in five years, but sales are still 30.6% below pre-pandemic levels.
This unpredictability has only made managing inventories for vehicle manufacturers and the plants making their chips and PCBs more difficult. In most arrangements, vehicle manufacturers cannot simply return their excess stock to their EMS, meaning this excess negatively impacts finances and takes up valuable warehouse space. Not to mention, all of this stock has the potential to end up as electronic waste.
Automotive industry predictions
Like many industries, the automotive sector has grappled with financial challenges due to high inflation, soaring interest rates, persistent supply chain disruptions, and fluctuating economies. Despite this, it is widely accepted that EV adoption is inevitable, so governments continue to invest heavily in EV technology and infrastructure. The Biden administration has committed $7.5 billion through the Bipartisan Infrastructure Law to build a network of 500,000 EV charging stations across the US by 2030.
Even with heavy government investment and subsidies, Western vehicle manufacturers are most concerned about the future of EV production. In recent years, Chinese EV competitors, like BYD, have released EVs at significantly lower price points.
The average price of an EV in China in the first half of 2023 was about $33,000. In Europe, it was $70,700, and in America, $72,000. This large difference in price can be attributed to a number of factors, including low labour costs in China, larger subsidies from the Chinese government, and a well-established Chinese supply chain for crucial battery production.
This newfound competition from China has meant some European manufacturers are pivoting strategies toward the high-end niche that is less price-driven.
To reduce costs going forward, Western manufacturers may introduce innovative techniques such as giga casting, while electronics suppliers might operate at 80% capacity to maximise their returns.
Hybrid vehicles are also gaining in popularity, at least in the short term. In February, U.S. sales of hybrid vehicles increased five times faster than EV sales. This shift could be particularly driven by concerns about the range of stand-alone EVs and their high price points. Hybrid vehicles serve as a fantastic stepping stone to full EVs and help to reduce carbon emissions, so these sales are still positive.
Looking ahead, we hope for increased global investment in EV charging stations. This will address a key barrier to purchase for would-be buyers worried about range. Many seem hopeful of further investment and EV buy-in, with EVs still projected to make up for 60% of global vehicle sales by 2030.
Some EVs operate using upwards of 50,000 electronic components. However, microchips are needed for all modern vehicles. No matter the pace of EV adoption, it is safe to assume that the requirement for electronics in transportation will only increase over time.
Effectively manage component inventory levels with Component Sense
While Component Sense does not have all the solutions for how vehicle manufacturers should approach current market conditions, we can help with their E&O stock. Many of the automotive companies that deal with us mention sitting on too much inventory from recent over-forecasting. This presents a significant financial risk and means manufacturers are less agile.
If you want to get rid of your excess quickly and are willing to accept an upfront cash offer, choose Component Sense’s Outright Purchase solution. Our business can bid on your excess stock within 24 hours. If the offer is accepted, we can uplift your E&O inventory within 48 hours.
To retain ownership of your E&O inventory while we actively list and sell it, choose Component Sense’s Consignment solution. Not only will your stock still be stored off-site while it is listed and sold, but consignment returns, on average, five times more income than outright purchase. Email us today to discuss any one of our redistribution options.