30 Jun 22

Delivery times: light at the end of the tunnel?

Ever since our economy woke from pandemic lockdowns, OEMs have been struggling with delivery times mainly because of the shortage of semiconductors. So is the auto industry beginning to see a silver lining on the dark supplier cloud hanging over their factories? And how long are lead times these days?

Of all the industrial sectors depending on microchips, repercussions have been most severe for the automotive industry. For two years already. Because of their just-in-time strategy, highly personalized car configurations and stringent safety demands requiring specific chips, the shortage has made delivery planning bone-hard for car makers. 

Moreover, automotive OEMs account for roughly 10% of the global chip market, so they are queuing up at the back of the line after consumer electronics companies. The result? Dealer lots are empty, and the market is inverted with supply ruling over demand. Since the pandemic started, output levels haven’t shown any recovery. And with a growing order book for EVs (worldwide market tripled in the first half of 2022), which require tenfold more chips than ICE vehicles, car makers are forced to make choices or vital changes on what to manufacture.   

Other disruptors

Could it get even worse? Definitely. With an important share of wire harness suppliers located in Ukraine (for EU: 7% of import), a new component shortage stepped in when Russia invaded the country. But OEMs rushed to suppliers in other places, like Morocco and Mexico, to bridge that gap. As a result, the affected plants idling are up and running again, with the cable crisis no longer overshadowing the semi-conductor problem. Still, in Volkswagen’s Zwickau factory, making the all-electric MEB models, a further delay of six weeks was created.

In the case of Tesla, even the old ghost of Covid-19 influenced lead times as its global hub, the Gigafactory of Shanghai, shut its doors because of a sanitary lockdown at the beginning of the year. Being able to postpone the delays longer than average, the American EV maker also got hit. Leasing companies like Belgian KBC Autolease have now scrapped Tesla from their list since it maintains the right to adjust pricing upon delivery, also driven by inflationary pressure, a possible hike that KBC doesn’t want to impose on its customers. 

Back to Ukraine. Since the country is responsible for half of the world’s supply of purified neon gas, a critical ingredient for the lasers making semi-conductors, the invasion can still affect the supply chain at a later stage. The largest chip makers in Taiwan currently rely on safety stocks, protecting them from production constraints, but it might become an issue in the second half of the year if peace isn’t restored.

Creative thinking

In a reaction to control the chip bottleneck OEMs have embraced a myriad of creative solutions:

  • Straightforwardly cancelling or stopping order intake
  • Removing popular options like electric steering adjustment, adaptive cruise control, keyless go...
  • Rewriting code so chips can do more
  • Eventually, choosing the costly way out of retrofitting chips at dealerships once availability is restored 

But these are all remedies, no cures. The adopted crisis cells at headquarters developed some of the solutions above. Still, the question remains whether they are experienced and equipped enough to overcome the challenge mid-run.   

As for now, car makers have overboosted their semi-conductor orders and stepped in to direct supplier deals, like Ford and BMW with GlobalFoundries or GM with Wolfspeed. These stronger bond partnerships already start supplying slowly as of today. Good evolutions, but again, no quick fixes.

CEOs versus analysts

The CEOs are more positive about the outlook than the analysts. CEO of Volkswagen Group Herbert Diess exclaimed high hopes a few days ago for the second half of 2022, stating that signals indicate the chip shortage is easing. “We see opportunities for further production increases”, he added. 

BMW and Mercedes are similarly voiced. Since June, they see a breakthrough coming in earlier than expected, finally injecting some rest into the fastidious volatility. Mercedes’ Head of Production and Supply Chain Management Joerg Burzer told Bloomberg that supply issues occur “here and here, but nothing compared to what it was like last year.”  

Signs are optimistic, declaring victory premature. In its latest report (from June 10th 2022), consultancy firm McKinsey concludes that the shortage is most likely to get resolved by mid-2023, also pointing at how the automotive industry traditionally lacks the end-to-end transparency in their supply chain that surfaces potential problems at an early stage. Fleet managers best maintain the adopted attitude that takes uncertainty and complexity into account and read this advice carefully to deal with the delays.

Not all cars are equal

While production might reach more harmonized levels this summer, the order books to be filled are huge. Obliged to safeguard profit over dwindling revenue and to avoid CO2 fines in the EU OEMs keep preferring specific car models over others accordingly. 

Higher margin cars in the executive segment with better equipment are prioritized over more compact base models. Ranges are also simplified to better process the orders. For example, Volkswagen has cancelled all but one version of its popular all-electric ID.3. You have to wait at least one year for it, while you can have an Arteon with a petrol engine in two months.

Most brands, like Hyundai, Audi, Ford, and Volkswagen, among others, don’t take orders anymore for their plug-in hybrids. Not only because they are much sought after, with the remaining of the year fully booked, but also because of regulatory uncertainty. Germany is debating its support for PHEVs, possibly ending incentives by the end of 2022. 

The waiting list for battery-powered vehicles is longer than for combustion-engined cars, because of that unprecedented demand and higher chip rates. It shows in the list below. A car manufacturer like Alfa Romeo, with almost no electrification in its range, copes with much lower lead times. 

At the other end, Audi’s much-wanted Q4 E-Tron can hit a 24-month waiting period in its home country Germany. However, if production reaches full scale, BEVs are likely to end on the priority list, since every car maker has to meet its CO2 target, with a BEV production spike at the year’s end as a common feature.

An indicative guide

With the fluidity and dynamics of this crisis in mind, it remains difficult to secure a meaningful lead times list. Also, because different quotas in different countries out rule a standardized European table while personal configuration influences deliveries to a great extent as well. Keep in mind also that shipping complications due to Brexit further affect lead times for British customers.      

Nevertheless, we’ve compiled an indicative guide showing a minimum and a maximum per car maker based on data from carwow.de (validated on June 8th 2022). The portal has access to detailed information from authorized dealers in Germany. Unfortunately, these lead times don’t offer validation elsewhere in Europe.

Image Source: Volkswagen


Authored by: Piet Andries