Strategy Note /
China

Tesla can deal with supply chain shortage, unlike most Chinese peers

  • The global automotive industry is facing a deepening supply chain crisis

  • With its great cost control and supply chain integration, Tesla is likely to remain the least affected EV brand

  • The crunch is likely to be relieved in 2022 but it will take years to fully meet the industry's needs

Niko Yang
Niko Yang

Senior Analyst

EqualOcean
9 November 2021
Published by

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BYD is positioned well, too.

Tesla article

The global automotive industry is facing a deepening supply chain crisis. For one, Toyota: it slashed 40% of its planned production in September. Another case is French carmaker Renault: it expects to cut production by 500,000 cars this year. Although many companies have been making decisive moves, they haven’t seen much relief so far. On the other hand, NEV leader Tesla (TSLA:NASDAQ) delivered another record quarter again.

Why didn't the shortage bother Tesla much? When will this supply chain mess be over? What's the crisis' implication on EV stock valuations? This article will answer these three questions.

As we argued in our latest research report, there are at least four major factors causing this component shortage:

  • The capacity cycle in the semiconductor industry

  • Lockdowns affecting key suppliers

  • Fast-growing demand for electronics

  • Climate hazards and natural events

The first and third reasons reveal the long-term bottleneck in the chip industry. Among other implications, this means most OEMs now need to pay more to get essential components. With its great cost control and supply chain integration, Tesla is likely to remain the least affected EV brand. Among Chinese companies, BYD can resist surging costs – but to a smaller extent than Tesla. NIO, XPeng and Li Auto will have to spend more money to deliver cars on time. Li Auto, for example, is said to buy chips at 800 times the normal price. We'll start with the semiconductor chip-related reasons.

An eventful year

The semiconductor shortage is both accidental and inevitable. Auto chips only account for 10% of the global semiconductor capacity. But the mounting demand for auto chips occurred along with a trough in the semiconductor market cycle, which has significantly affected global chip production. Before this trough, the most commoditized types of integrated circuits, like DRAM, had seen their prices declining, which made the sector's largest players postpone capacity expansion. Meanwhile, the pandemic forced workers far away from their assembly lines. In Kuala Lumpur, for instance, testing and packaging plants had to shut down for almost three months since June this year. The pandemic also disordered the consuming patterns: demand for all electronics, especially PCs, smartphones and tablets surged during the outbreak. Lastly, the automotive semiconductor supply chain was also hit by a few climate change-caused black swans. In February, extreme weather in Texas caused widespread power outages, affecting manufacturing activities at Samsung, NXP and Infineon. 

Dawn in 2022

The crunch is likely to be relieved in 2022 but it will take years to fully meet the industry's needs. Predicting supply chain relief timing is hard, as most companies can only focus on a small segment within the whole sector. We found that most players believe the situation had improved by July but will remain an issue, at least until the end of 2021. Only a few CEOs have expressed longer-term worries.

However, some have extended their auto industry recovery time estimations...

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