We expect global light vehicles sales will increase by between 8% and 10% this year to 83-85 million units, from 77 million in 2020. This does not materially diverge from our previous forecasts of 7%-9% growth for 2021. However, we now see a quicker global rebound after sales in 2020 exceeded our expectations as a result of pent-up demand and successful measures to stimulate demand in the second half of the year. Given the record low inventories across the industry at the end of last year, we initially anticipated a fast rebound of light vehicle production this year. However, we have substantially realigned our projections, owing to the shortage of electronic components since the end of last year, further exacerbated by unexpected supply-chain disruptions in 2021, such as the fire at a major Renesas Electronics Corp. semiconductors supplier in Japan and climate issues in Texas that triggered the closure of chip-making plants. We now expect restocking to be delayed into 2022 and 2023.

Visibility over when supplies will normalize remains very poor. Based on manufacturers' first-quarter results, we expect supply disruption to further deteriorate in the second quarter and hopes for a recovery in units in the second half of the year are starting to fade. While almost all global auto manufacturers will have to idle production at some stage this year, the impact of the chip shortage varies substantially between companies. Ford already suffered a 17% negative impact on its planned production in the first quarter compared with 11% at Stellantis, the group created from the merger of Peugeot and Fiat Chrysler Automobiles earlier this year. Ford has now announced likely cuts of up to 50% in the second quarter, leading to a loss exceeding 1 million vehicles in 2021. This leads us to believe that our initial assessment of net loss production of up to 3 million units for the industry as a whole in 2021 may have been too optimistic (see "Global Semiconductor Shortages Could Chip Away At The Auto Sector's Recovery In 2021," published on Feb. 10, 2021, on RatingsDirect).

Nonetheless, demand remains sustained, particularly in China and the U.S. This, in combination with low inventories, has resulted so far in record pricing effects across the industry and solid residual values. These factors are mitigating the supply disruption crisis on manufacturers' earnings. Our base-case scenario, however, is that normalization will take the whole of 2021.

Table 1

Across the regions, the recovery in global auto sales remains uneven. China and the U.S. are powering the recovery of global demand for autos, supported by rebounding private consumption in China and massive economic stimulus in the U.S. China has greater prospects for growth than the other regions. The auto sector demonstrated greater resilience than other consumer durables in 2020 and is thus not expected to be the main beneficiary of recovering private consumption. Still, light vehicle sales at the end of Q1 2021 were only marginally below those of the same period of 2019 at 6.2 million, according to LMC. This is, however, well below peak volumes in Q1 2018 of 7.1 million. Notably, car density in China, as measured by the number of vehicles per 1,000 adults, is only 25% that of the U.S., which demonstrates the strong potential for volume growth that few other markets in the world offer.

Electrification Now On A Clearer Global Path

Political strategies for a green-led economic recovery from the COVID-19 pandemic will wing electrification of the global light vehicle fleet. The Green Deal in Europe, the ambitions of the Biden Administration to drastically curb emissions in this decade, and the Chinese government's targets to increase the proportion of new-energy vehicles to 20% of sales by 2025 (from 5.5% in 2020), all point clearly down the electrification path. Yet, mass adoption of electric cars still requires a much more granular charging infrastructure and local supply chains for battery cell production. Europe is currently leading the transition: battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV) will represent 15%-20% of the European market in 2021 in our base-case scenario and 30% by 2025. This compares with an expected 6%-9% market penetration in China, although we believe the Chinese market will regain its position as the largest EV market over time. In the U.S., the Biden Administration has announced a commitment of $174 billion to accelerate the deployment of electric vehicles, including point-of-sale rebates and tax incentives, and a national network of 500,000 chargers by 2030. These developments lead us to assume, in our base-case, that electric vehicles, including plug-ins, will approach 10% of U.S. light vehicle sales by 2025. Last year, the share of these vehicles was barely 2%.

On a global scale, we see EV penetration in the 6%-8% range in 2021. The potential further tightening of CO2-reduction goals in Europe, on the political agenda this summer, has already resulted in more aggressive fuel-mix strategies by producers with sizable operations in the region.

Table 2

Digital Design: Tom Lowenstein.

Related Research

• The Hydrogen Economy: For Light Vehicles, Hydrogen Is Not For this Decade, April 22, 2021
• China Auto Industry Is On Track For Healthy Growth, March 9, 2021
• Global Semiconductor Shortages Could Chip Away At The Auto Sector's Recovery In 2021, Feb. 10, 2021
• After Ending 2020 Strongly, U.S. Auto Sales Are Set To Continue Recovery In 2021, Jan. 19, 2021