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News Article

Available Semiconductors Will Go to SUVs

By Alfonso Núñez | Tue, 04/05/2022 - 12:30

With the semiconductor shortage continuing to limit manufacturing and supply for the growing demand, automotive producers are prioritizing sport utility vehicles or SUVs due to their pre and post-pandemic popularity.

 

According to Gerardo San Román, Latin America Director, global automotive market research firm JATO, 1Q2022’s slow sales are causing the automotive industry to direct the limited semiconductors available to the production of the most demanded and profitable units. The industry is also decreasing incentives, subsidies and discount sales as they are no longer needed. The limited supply plus the growing demand means the vehicles produced are sold with ease.

 

SUVs were growing in popularity worldwide before the pandemic, as sales in 2018 grew by 12 percent, four times the rate of the general industry. Unlike other types of vehicles, SUVs’ popularity growth has been global rather than regional. The SUV has grown in popularity due to its efficiency and functionality as well as its abundance of space and versatility made for urban roads as well as long road trips.

 

The pandemic has expedited shifting preferences in vehicle ownership as younger generations opt for day-to-day commutes through rideshare apps and public transportation more so than vehicle ownership. However, SUV popularity has only risen with a 10 percent increase in sales globally in 2021 after a 16 percent increase in 2020, even surpassing the global popularity of EVs.

 

This increase in popularity can largely be explained by car owners changing schedules and travel preferences. As more and more offices choose to give workers the option to work remotely, travel outside of vacations is becoming more popular, with “digital nomads” choosing to work from a beach or nearby tourism destination rather than from home. SUVs are an ideal vehicle for this new lifestyle as they are viable for both travel and urban navigation, explaining the increase in sales even during two of the industry’s toughest years. Automotive brands are looking to capitalize on this opportunity.

 

During the remaining quarters of the year, the automotive brands that will find the most success will be those with the most available inventory, said Román. Furthermore, Chinese brands such as JAC and MG Motor are likely to find continued success due to their low prices and greater access to microchips due to being closer to manufacturers.

 

The Americas are already investing in bringing semiconductor manufacturing closer to retain market competitiveness. But until further progress can be made on that front, semiconductors available are likely to continue being prioritized for SUVs, particularly as Román predicts that a full market recovery will not be reached until 2026.

Photo by:   Unsplash, Hamza Younas
Alfonso Núñez Alfonso Núñez Journalist & Industry Analyst