German automotive was dealt a hard blow by supply bottlenecks

German automotive sector sentiments punged to the lowest level since April due to exacerbating supply chain blockages and a shortage of semiconductor chips, according to economic research institute ifo on Thursday.

The institute’s index of automotive industry sentiment index fell nearly 30 points on a monthly basis, from 56.4 points to 28.8 points in August, the weakest prognosis since the beginning of the second quarter of 2021.

The global automotive sector is plagued by a shortage of semiconductor chips, and there is no end in sight.

According to industry estimates, the lack of chips caused the industry to cut production by two million vehicles in the second quarter. In July-September, a shortfall of nearly a million vehicles is expected.

“This shows that the automotive industry continues to suffer from supply bottlenecks of intermediate products, especially chips,” says Oliver Falk, Director of the ifo Center for Industrial Organization and New Technologies.

Despite the expectations that the deficit in the automotive sector will continue and demand for the highest margin chips in the electronics sector is curbing potential supply growth in the auto sector, German manufacturers' expectations improved last month.

Production plans for the near term rose more than 10 points from the previous month to 34.8, while export expectations nearly doubled to 15.1 points, despite a sharp drop in demand.

Expectations for finished goods inventories fell even deeper, to negative territory, from -33.3 to -42.1 points, while expectations for employment turned downward on the back of production constraints.

“These fluctuations reflect the profound structural changes that the auto industry is in,” Falck added.

Low employment expectations emerged despite the sector's growing reliance on digital skills, largely driven by new hires, according to ifo.