Raw materials inflation: impact on the automotive industry and catalysts

As you may have noticed, the automotive industry is going through a complicated period. Various shortages and high inflation have led to fluctuating sales. The impact of COVID is not insignificant either, leading to slack periods which have had major consequences for carmakers.

The massive development of the electric car solves certain aspects as much as it penalizes others, with one direct consequence: the question of lithium-ion availability. And what about catalytic converters?

Is the automotive industry still plagued by crises ?

The history of the automobile is particularly complex. It is subject to crises and inflation. As a direct witness, it adapts in terms of energy, size and even color.

The more prosperous the period, the bigger and more colorful the cars! But behind this superficial observation lies a slightly more bitter picture, which is costing motorists more and more.

In recent years, two major crises have taken shape. The first was the shortage of semi-components, which affected all electronics manufacturers. As our cars are full of them, the impact has been devastating. Some car dealerships were even forced to remove certain equipment from their cars in order to deliver on time.

At the same time, the ban on internal combustion cars by 2035 and the impact of the ecological penalty have led to an explosion in demand for electric (and hybrid) cars. Demand for lithium-ion has been exponential, saturating extraction networks and generating high inflation. Added to this, of course, are consequences such as the rising cost of electricity, the increasing scarcity of labor and the problem of battery recycling.

It is in this very complicated context that the automotive industry is evolving and trying to reinvent itself, while keeping costs "reasonable" for end customers. But in reality, the entire sector has been hit by raw material inflation.

The cost of spare parts is rising sharply

If your car suffers from a clogged DPFS, you're probably looking for new equipment. This applies to tires, shock absorbers and even belts.

It's a fact: the entire automotive sector is suffering from high inflation. Inflation varies according to the cost of metals.

In recent weeks, there have been significant declines in metal prices. Copper, aluminum, zinc and lead have all fallen sharply. However, this fluctuation is difficult to feel on the price of finished products. As a result, the latter tend to rise, at the same rate as electricity bills.

According to UFC Que Choisir, the price of car parts is set to rise by 12.69% in 2022. Inflation having risen, it is unfortunately likely that this increase will continue this year. You can feel it when you go to the garage.

What impact on the automotive industry ?

The main impact of this inflation is felt when it comes to buying a new car. Prices have risen sharply in all segments, prompting motorists to lower their expectations or opt for a smaller car or a lower trim level.

On the automaker side, the renewal of certain models is sometimes postponed and ranges are simplified. For example, the new Peugeot 3008 comes in just two trim levels, compared with six previously available. This simplification of the range reduces development costs and standardizes the offering.

Similarly, negotiating margins have become very small, if not non-existent.

This not only benefits authorized dealers, but also the development of leasing. This type of financing allows you to pay a fixed monthly sum for the use of a new car, for a defined period and mileage. As a result, you are simply the lessee of your car, and buy-back is only possible on the LOA formula. Added to this is a declining sales momentum, which reduces sales volumes and can even put a strain on the distribution network.

All in all, the entire automotive industry finds itself in a complex situation. On the one hand, costs have to be cut, and on the other, massive investment is needed to meet environmental standards, notably Euro 7.

What about catalytic converters ?

Like all automotive spare parts, catalytic converters seem to be experiencing inflation, albeit less so than other parts. The reason is that this anti-pollution equipment is mainly composed of metal and other precious metals, which are a little less sensitive to inflation. However, ancillary costs are rising, and manufacturers have no choice but to pass this on to the final selling price of the equipment.

More than ever, therefore, it's essential to choose a quality catalyst. And contrary to popular belief, it's not always the most expensive products that are the most durable and efficient..

What's next ?

While the current balance sheet is not necessarily very glorious, it can be tempting to project ourselves into the future. And here, it's rather complicated.

As far as semi-components are concerned, new factories are springing up all over the world. It may take some time for them to perfect themselves, to become profitable and to achieve mass production. But this will undoubtedly have a significant (and positive this time) impact on the cost of electronic products.

As far as lithium-ion is concerned, it's hard to say for sure. Resources are plentiful, but extraction is complex, costly and polluting. The significant increase in demand for electric vehicles could quickly saturate demand.

Carmakers are trying to get ahead of the curve by focusing on other rare metals, but this remains a minority strategy. All in all, the sector is evolving very rapidly, and proving highly sensitive to various crises, which are difficult to estimate and predict given the pace of change.

Conclusion

Inflation in raw materials prices is having serious consequences for the entire automotive industry. The impact is very real, and weighs increasingly heavily on household budgets.

Unfortunately, we lack vision for the future. While interesting alternatives are being developed, the complicated context makes forecasting difficult. So, in the short term, we can't expect a drop in the price of spare parts or cars in general.

Inflation is set to continue in 2024, albeit to a lesser extent than in 2023.

While real, tangible data are hard to come by, it would seem that solutions are emerging, both for semi-components and for lithium. And that's rather good news, as it could help maintain momentum in terms of car sales.

And we all know how essential this factor is. It enables manufacturers to continue investing and, potentially, to achieve economies of scale. Only time will tell if our forecasts are right!

Image sources:
Karolina Osinska / Author: NomadSoul1 / License ID: 3DP6ETBUF7 - elements.envato.com