Renault Financial Report Reveals Big Chip Production Hit, But Industry Trough Predictions Vary

Investors hope to find out more evidence about the state of automotive chip supply chains when Europe’s auto manufacturer’s report 3^rd quarter financial results, and Renault of France’s news Friday that its production losses would be much bigger than expected won’t help their mood.

Some experts predict an early improvement in semiconductor supply chains, but others see extended grief.

Renault said its production losses for 2021 would be nearly 500,000 vehicles, up from 220,000 expected early last month with more than 170,000 lost in the third quarter. Renault said 3^rd quarter revenue fell 13.4% to €8.98 billion ($20.5 billion) from €10.37 ($12.1 billion) in the same period last year. French companies don’t report earnings in the 1^st and 3^rd quarters.

Renault said despite the drop in production, its operating profit margin for 2021 would be roughly the same as the first half’s 2.8%.

Renault shares rose slightly to €31.41 in European trading, at a slightly faster pace than the Europe Auto STOXX 600 index which rose 1.26%.

Next week Stellantis (October 27), Volkswagen (October 28), and Daimler (October 29) report their 3^rd quarter financial results. BMW reports November 3.

While car sales forecasts for Western Europe are being slashed and investors are bracing themselves for poor results from the big manufacturers, some analysts reckon the worst is behind the industry, which is being disrupted by the chip supply crisis. This has helped premium German automakers which have concentrated sales campaigns on selling fewer but high profit vehicles.

BMW and Daimler are expected to weather the storm better than Volkswagen. VW investors will be wondering how much profits were hit by reports production at its flagship Wolfsburg plant so far this year were the lowest since 1958 with just 300,000 cars made, according to Automotive News Europe.

Investment bank UBS thinks the global auto industry can mount a strong recovery in 2022 which could lead to double-digit growth as semiconductor output recovers.

“In light of chip packaging and testing plants in Malaysia back up and running, there could be a gradual auto production recovery kicking in (the current quarter),” UBS said in a report.

Frank Schwope, analyst with Norddeutsche Landesbank Girozentrale, isn’t so sure.

“In view of the lack of semiconductors and the fact that new manufacturing capacities may not start production until 2023, the shortage economy could extend in the year after next,” Schwope said.

Fitch Solutions Country Risk and Industry Research is even less optimistic.

“The global automotive industry will continue to experience operational disruptions over the next 3 to 9 months, as we only expect semiconductor supplies to start showing signs of improvements from the 2^nd half of 2022. The combination of component shortages, continued shipping delays and localized Covid-19 outbreaks, among other risks, will see the global vehicle recovery slow over the remainder of 2021, and very likely into the first half of 2022,” Fitch Solutions said in a recent report.

There is a growing stock of half-finished vehicles which will suddenly boost output once supply is normalized form the middle of next year, Fitch Solutions said.

Meanwhile sales predictions are being slashed.  Forecaster LMC Automotive cut its West European forecast for the 3^rd month in a row to a barely noticeable rise of 0.5% for 2021 to 10.74 million cars and SUVs, even less than the previous year’s coronavirus crushed total of 10.79 million. LMC had forecast a healthy 9.6% gain for the year as recently as July, but followed up with 3.0% rise prediction, then 2.5% a month later and now 0.5%.