Analyst: China Ahead in Overcoming COVID, Microchip Shortages

DULUTH, GA – Vehicle production will recover from the COVID-19 pandemic and microchip shortages more quickly in China than in other regions of the world, an industry-watcher predicts.

Production in China peaked in 2017 at 27.7 million units and will return to that level in 2024, then grow steadily to 30 million units in both 2028 and 2029, says Joseph McCabe, president and CEO of AutoForecast Solutions in Chester Springs, PA.

“We have capped China at 30 million units, because the Chinese don’t want to build only in China. They want to build in the rest of the world,” McCabe says during the third and final day of the recent Southern Automotive Conference here in this Atlanta suburb.

In fact, McCabe (pictured, below left) argues that China has no choice but to try to expand overseas. “In 2029, China will have 113 manufacturers. But even worse, they’ll have 105 different brand owners. That’s not sustainable. They all can’t survive.”

Joseph McCabe

“The new norm, following the pandemic and semiconductor shortages, is going to be different,” McCabe says. “We see North America never getting back to the 17.8 million mark. Nor will Europe and Asia (excluding China) get back to 22 million and 23 million levels.”

The chip shortage has accounted for nearly 8 million units of lost volume, including 2.9 million in North America, 2.4 million in Europe, 1.1 million each in China and Asia excluding China, and 0.4 million in the rest of the world, he says, adding that automakers “are not out of the woods yet. We believe more pain is coming.”

McCabe says 430 plants in 60 countries that build light vehicles have been adversely impacted by the chip shortage.

Battery-electric vehicle production in North America will grow to 5.5 million units in 2029 (including 4.5 million in the U.S.), up from 600,000 in 2021, the forecaster says. BEVs will account for 32% of the region’s light-vehicle output, which is projected to reach 17.2 million. 

Separately, combined hybrid production in the U.S., Canada and Mexico is projected to grow to 3.4 million units.

In Europe, AutoForecast Solutions expects BEV production to reach 8.3 million units in 2029, accounting for 38.4% of total production and up from 900,000 in 2021. Hybrids will grow to 2.5 million units.

In China, BEV production is projected to grow to 9.9 million units, or 32.7% of production, in 2029. “Even though the rate of growth is declining, it is still a huge number,” McCabe says, adding the total number of BEVs on Chinese roads will grow to 71.5 million units in 2029. 

“This compares to 41.6 million in Europe and 28 million in North America,” he says.

Globally, AutoForecast Solutions estimates BEV production will grow to 25.6 million units in 2029, roughly one-fourth of global light-vehicle output. Hybrids, including 3.7 million PHEVs, will grow to 12.6 million units, raising the “electrified” vehicle total to nearly 40%. 

In 2021, global electrified vehicle production totaled 11.2 million units, including 4.8 million BEVs.

Against this backdrop, McCabe draws attention to the so-called “1 million-unit club” of electrified-vehicle brands, which he says will have “buying power and the ability to negotiate and push their supply base around for better pricing.”

At present, there are 22 OEMs on McCabe’s list. In addition to industry leaders such as Toyota, Volkswagen (pictured, below) and Stellantis, the list includes smaller players, all but Tesla from Asia and which “will have significant buying power and will want a piece of the American economy.”

Volkswagen ID.4 GTX_0

Top of the list of Asian automakers with sights currently on the U.S. market, according to McCabe, are Guangzhou Automobile Group, Chery Automobile, BYD, Geely Auto, SAIC Motor, all Chinese, and Vietnam’s VinFast (pictured, below).

New names likely to be added to the “club” by 2029 are Beijing Automobile, Dongfeng Motor and FAW Group, all Chinese, along with Isuzu and Subaru from Japan.

By manufacturer, the forecaster predicts VW Group, Tesla and Stellantis will rank 1-2-3 in BEV production in 2029 with 3.0 million, 2.6 million and 2.5 million units, respectively.

VinFast VF8

In terms of battery production, AutoForecast Solutions predicts most OEMs want to get 300 miles (483 km) of range on average per charge. “North American and European OEMs will get the high end (more than 300 miles) while Asian manufacturers the low end (less than 300 miles).

“We're basically saying that 70 kWh per vehicle is going to be the norm after 2029,” according to McCabe. “We will need four times the amount of battery production capacity than we have now. That comes to 30-50 more gigafactories.”

McCabe also discusses the recently signed Inflation Reduction Act and potential problems with its implementation.

“Number one,” he says, “the vehicle has to be built here. Number two, if you want any money from the tax, it's got to fall into a critical-mineral and -battery component threshold.”

Those thresholds – which apply to BEVs, PHEVs and fuel-cell vehicles – begin in 2023 at 40% for critical minerals and 50% for battery components, rising to 80% for critical materials in 2027 and 100% for battery components in 2029.

“These minerals and components have to be sourced from within the U.S. or a country with which the U.S. has a trade agreement, the caveat being that nothing can come from a ‘foreign entity of concern,’” McCabe says. 

Note that “foreign entities of concern” include China, Russia, Iran and North Korea.

“If even 1% of that mineral or battery component comes from China (for example), the game is off,” McCabe says, adding, “This will be a hard hurdle and has to be phased in over the next two years in order to receive a tax credit.”