The auto industry is one of the sectors hardest hit by supply chain disruptions caused by the pandemic. However, this is not actually the case. The German Volkswagen Group announced its financial results for fiscal year 2021. Although total car sales fell by approximately 600,000 units YoY and dropped significantly by 2.4 million units compared to 2019, Volkswagen was more profitable, with revenue increasing by 12% in 2021 to 250 billion euros. A key factor was the doubling of sales of more profitable electric vehicles (EV).
Due to a series of factors in the past two years, including waves of the pandemic, microchip shortages, and supply chain disruptions, 2021 had a big impact on the auto industry but Volkswagen seems to have found the perfect solution to the problem. Operating profit nearly doubled last year compared to 2020 and operating margin climbed to 8% from 4.8% last year.
The key lies in EVs. In 2021, Volkswagen Group's EV sales doubled to 451,900 units and Volkswagen will become the European EV market leader with approximately 25% market share and 7.5% market share in the United States, ranking second. Volkswagen also sold 92,700 EVs in China, four times as many as in 2020.
Compared with traditional gasoline vehicles, EVs require more specialized technology, so automakers will price EVs higher than gasoline vehicles. Since current car production plans are stymied by the pandemic, car manufacturers can increase the price of any vehicle to make up for the loss of income, allowing them become actually war profiteers.
Volkswagen expects, assuming no further future pandemic outbreak and after a resolution of parts shortages, vehicle deliveries to increase by 5 to 10% this year compared to 2021 and revenue to increase by 8 to 13%. Structural semiconductor shortages persists in first half of fiscal 2022 but semiconductor supply will improve in the second half. However, this is a best-case scenario and Volkswagen expects things will not turn out so well. One of the biggest variables is the war in Ukraine which could negatively impact business and supply chains.
The most serious problem now is the shortage of wiring harness auto parts. Volkswagen stated that 11 of its factories need Ukrainian wiring harnesses and nine of them are reducing production capacity. The procurement of raw materials during the war has also been affected including key materials such as lithium, nickel, and cobalt, especially impacting the production of electric vehicle batteries which are expected to rise in price.
Volkswagen stated that it is building a 150-person team dedicated to coping with the coronavirus and selecting alternative parts suppliers. In addition, Volkswagen is building additional wiring harness capacity and shifting vehicle production to regions such as China and the Americas, Currently, production of approximately 100,000 vehicles has been shifted to the Americas and China.
Regarding the overall impact of the Ukraine war on the auto industry, Volkswagen stated it was unable to assess concretely at this time but production prospects for this year will certainly be affected. According to the Centre for Automotive Research, the suspension of production for nearly 20 million EVs due to lithium shortages and the war in Ukraine is sure to have a huge impact on consumers and the economy in Europe.
(Imageļ¼Flickr/Maurizio Pesce CC BY 2.0)