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  • Rovindu Ambagolla

Special Report >>> Chip Shortages are Driving Automobile Profits Down

Picture Credit: Kyle Mackie

Businesses have been hit hard by the pandemic. Many companies have struggled just to survive the initial stages of the pandemic with even the most well performing companies resorting to debt in order to finance themselves. Now that the world economy is cautiously reopening, most industries are also starting to report healthy profits once again. However, some industries are still dealing with the after effects of the pandemic, particularly the automobile industry.

The world has been wrestling with an ongoing microchip shortage. This shortage began at the peak of the pandemic when many factories had to shut down their production, making most of the materials needed (especially semiconductors) for chip manufacturing unavailable.

In today’s day and age, we rely heavily on our digital gadgets to connect us to the information we need, and microchips are essential to the functionality of our devices. Most modern-day cars depend heavily on the use of microchips to provide a multitude of services such as GPS functionality and even maintaining some safety features on the car. This global shortage has caused many automobile companies to incur heavy losses.

The current situation Jaguar Land Rover has found themselves in is a prime example of the devastating effects of the global chip shortage. The group, which is owned by Tata Motors, has missed out on the opportunity to sell tens of thousands of vehicles because of the shortage, making them unable to produce cars to meet the demand.

The group has reported a £302 million pre-tax loss this quarter, which is three times heavier than the loss they incurred in June. Their total revenue dropped by 11% to £3.9 billion after sales of every model apart from the Land Rover Defender dropped. Many regions experienced a drop in sales, with the UK market down by almost 50%.

- Land Rover Defender Picture Credit: Balazs Busznyak

It isn’t just Jaguar Land Rover that is experiencing difficulties because of the global chip shortage. Nissan has reported that it will be making 500,000 less vehicles due to the chip shortage, and Hyundai’s sales have dipped by 24% in September.

However, not being able to meet the demand is only part of the problem. Due to the ongoing chip shortage, JLR have not been able to sell their electric car line as well as they were hoping to. The group commented that the chip shortage “disproportionally impacted production of electrified products”. While the company reported that two-thirds of their sales in the quarter were made from sales of battery or hybrid-powered vehicles, most of these vehicles were only mildly hybrid and still relied on a combustion engine to drive the vehicle.

- New Hybrid Defender Picture Credit: Malusi Msomi

This has forced JLR to cut a deal with Tesla, which will allow them to pool its UK and EU carbon emissions with Tesla’s carbon emissions to lower their average carbon dioxide output and meet the regions strict emissions limits. This whole ordeal has cost JLR £37 million to Tesla, but they will have to spend another £59 million to buy carbon credits from its competitors in Asia and the US to meet their carbon emissions standards as well.

Jaguar Land Rover has had to endure rough circumstances throughout the past two years, facing both a pandemic and a chip shortage back-to-back. However, the company remains optimistic as experts predict that the worldwide chip shortage will end late this year, and JLR will finally be able to operate at full capacity once again to meet their growing demand.

November 3rd 2021 | 1:00 PM

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