Elon Musk, CEO of Tesla, generated controversy on Twitter when he responded to a comment by a user complaining about how much his car prices had risen in recent months. “They are increasing due to the price pressure of the supply chain throughout the industry. Especially raw materials,” the businessman said in a tweet, published at the end of May.
Musk responded to a Twitter user named @ Ryanth3nerd, who said: “I really don’t like the direction in which @tesla is raising vehicle prices …”
In May, the automaker raised the prices of its Model 3 and Model Y, the fifth in just a few months, according to data from Electrek, an information site specializing in electrics.
Tesla is not the only manufacturer that is raising its prices, due to all the disruptions that the pandemic caused in the global supply chain. Virtually all manufacturers are doing it.
“The natural trend in the face of product shortages is the price increase. It is a trend that we believe will continue towards the end of the year,” said Gerardo Macias, sales manager for Suzuki’s automobile division.
The natural cycle of the sector has been completely altered: vehicles remain on the sales floors for fewer days, sales incentives have been exhausted, automakers are losing sales volume because their inventories are very low, while Consumers pay more for the few available units of the car they want.
This has caused that the sales projections with which the manufacturers began the year are, in the best of cases, full of erasures. Others have already gone to the trash can.
“We feel that there are aspects that we will have to incorporate into our business plan, such as interruptions in the supply chain or the situation of the financing market. The variables that involved our original plan … is that they have all changed,” said David García, Kia sales director in Mexico.
The South Korean manufacturer has adjusted its initial sales forecast for this year. In December, it said it would seek to increase its market share from 9% in 2021. But after six months of constant supply chain disruptions, such as shortages of chips, polymers and a lack of containers, the brand’s executives have already they speak rather of obtaining 8%.
“The recovery of the Mexican market is not bad. Could it grow more? Yes. But the shortage of semiconductors has affected “, added García. Gerardo Macías, from Suzuki, agrees with this statement:” There is a potential for more sales. Production is not keeping up with the level of demand for new cars. “
Suzuki, which had expected to market 36,000 units this year, has reduced it to 32,000 after forecasting a drop in the inventory of practically all its models for the next three months.
The dealers’ sales forecast has varied due to ups and downs in model deliveries to sales floors. In December, they expected to sell 11% more vehicles in 2021, compared to almost 950,000 units in 2020. Now, the expectation has been reduced to an increase of 9% compared to the previous year.
Higher prices and scarce incentives
May sales were better than expected – 3,000 more units were sold compared to the Mexican Association of Automotive Distributors (AMDA) forecast – but it is clear that the market is beginning to see the impact of the supply situation. scarce of vehicles.
Locked up in their homes amid the pandemic, many people realized they wanted a car. During the months of confinement, the desire for “safe individual mobility” was the initial catalyst for sales, intensified by the ability of some people to work remotely, driving them away from urban areas and making them more dependent. of the vehicles.
Then came the chip shortage, caused by unusual and unexpected demand for computers, phones and consoles, and compounded by the burning of a factory of one of Japan’s largest semiconductor manufacturers, and by bad weather in Texas.
In addition to chips, the pandemic also disrupted other automotive manufacturers’ raw material supply chains, such as some plastics and foams for seats, as well as the availability of containers to move components and vehicles between Asia and North America.
All this has caused a distortion between supply and demand. “The availability of models is becoming a topic of conversation between salespeople and their prospects. Before it was taken for granted that there were models available, but now the seller tells you: I have immediate delivery, I have vehicles, come see them. I think this has become an important factor to be able to sell ”, said Isidoro Massri, director of JAC in Mexico.
Managers consulted agree that adjusted model inventories are unlikely to return to pre-pandemic levels before 2022, so prices will not drop and incentives to sell vehicles will be limited during the second half of the year .
AMDA data show that vehicle prices rose 9% in the first half and the manufacturers consulted confirm the data. “We are already seeing it. In our models it is already manifesting itself. Prices have already risen in line with that 9%,” said Macías.
For consumers, it won’t just be a matter of paying more for a car for the rest of the year. It will be about being flexible about which vehicle to buy and being willing to purchase an available model, even different from the one you might have originally wanted to choose.
“The market right now is desperate to reactivate and, unlike what happened three or four years ago, where there was excess inventory everywhere, now it is more difficult to get a discount. A new dynamic is being created, ”said Massri.
