Energy crunch threatens European automotive output: study

Skyrocketing energy prices in Europe and a possible harsh winter could place certain automotive sectors at risk of being unable to keep their production lines running, says S&P Global Mobility.

“The combined black swan events of the Covid-19 pandemic and the Russian invasion of Ukraine have already stretched the automotive supply line – especially in regard to semiconductors,” it says in a note seen by Kallanish. “Now, some OEMs and suppliers with energy-intensive manufacturing processes may face extensive pressure in terms of energy costs in the coming months.”

As a result, potential manufacturing losses from Europe-based OEM final-assembly plants could reach more than 1 million units per quarter, starting in the fourth quarter of 2022 through the entirety of 2023.

Quarterly production from Europe-based auto manufacturing plants has been forecast in the 4-4.5-million-unit range, meaning moderate growth. However, with potential utility restrictions, that OEM output could be reduced to as low as 2.75-3 million units per quarter.

“As seen with past regional events, losing one crucial piece in the global supply chain can bring the automotive manufacturing industry to a crunching halt,” the note says. “The consensus forecasts for a cold, wet European La Nina winter, combined with energy shortages, could have a similar effect. The recent leaks in the subsea Russian pipelines to Europe adds to risk and the likelihood that our model is directionally correct.”

“We also anticipate disruption of the traditional just-in-time supply model due to some suppliers implementing a schedule of working fractional-months on a 24/7 setup – which can be more energy-efficient than traditional weekly shifts due to the latter’s higher start-up and shut-down energy costs,” S&P Global Mobility says.

For an industry already struggling with low inventories of vehicles in dealer showrooms, an additional crisis could be incapacitating on a global scale, it warns.

“If you look through the supply chain – particularly where there’s any metallic structure forming through pressing, welding or extrusion – there’s a tremendous amount of energy involved,” said S&P Global Mobility principal analyst Edwin Pope. “Total energy usage in these companies could be up to one-and-a-half times what we’re seeing in vehicle assembly today. Some of this manufacturing capacity is becoming so uneconomic that companies are simply shutting up shop.”

Svetoslav Abrossimov Bulgaria