- Lee Jones (bottom right) of Fleet Procure was speaking at the recent BVRLA Industry Outlook event
NEW car prices are not keeping up with rising raw material costs, according to industry experts. As a result, car makers are deliberately slowing production of certain models in order to protect margins, according to automotive industry executives.
The issue was highlighted at a recent BVRLA webinar on vehicle supply. The raw materials impacted are mostly those used in electric vehicles and include lithium and nickel. Unlike supply shortages of certain components, there are enough of the raw materials, but their rapidly rising price has meant manufacturers have opted to slow or stop production. Doing so, and concentrating on production of ICE cars, has allowed car makers to maintain a higher profit margin.
Speaking on the webinar, Lee Jones, Fleet Procure founder and managing director, said:
“Six weeks ago I would have said supply would begin to improve from July onward but manufacturers are now delaying EVs due to the raw material costs. Pricing is not keeping up with the raw material costs.
“It’s not just automotive that’s after the raw materials, so too are the PC and mobile phone industries.
“The key for us is what happens with the Ukraine crisis. If that ends then things will improve. And if wholesale prices drop then supply will rise.
“Our current thinking is that we should see supply, overall, improve from September and for key electric vehicles we’re looking into 2023.”
Jones’s comments were backed by Paul Lund, head of industrial ratings at Fitch Ratings, who said:
“The manufacturers’ response has been to not build low-margin cars, they’re building the higher margin cars. They’ve also slowed the investment cycle too. Cars due to come out have been pushed back due to costs.”
He added: “Manufacturers have pricing power, but still need to bridge the margin gap between ICE cars and EVs, so you have to wonder, will supply of EVs rise with demand?”
Lee Jones also warned that cashflow could start to become an issue for some businesses in the second quarter of 2022 if supply continues to be tight. However, he said that overall the leasing broker sector had continued to grow year-on-year.
The MD of the Broker News partner added: “Last year was one of the best ever and supply wasn’t that bad even if issues did begin to bite at the end of the year. Leasing brokers have that ability to work around and switch to what the market needs are.”
Tristan Young is an award winning journalist with more than 25 years’ experience reporting on the automotive industry focussing predominantly on fleet and retail. As a self-confessed petrol-head, Tristan has a weakness for car classifieds. When he’s not writing about the automotive industry, he can usually be found outdoors with a small pack of border collies.