The saying ‘he’s had his chips’ just got an entirely new meaning in the post COVID world. We seem to have swapped the asphyxiating lockdown regulations for new challenges. Coming off the back of GM’s recent announcement to suspend production at 8 of its 15 US plants for the next two weeks over at your Porsche Hangout, we couldn’t help but wonder;
Understanding the shortage actually stems from the time-worn demand and supply equation. Unlike the common misconception that COVID caused production to stagnate, it was in fact the opposite. The sudden spike in people working from home had a knock-on effect pushing the demand for new tech through the roof. Folks all over the world suddenly found their older hardware putting limits on their creativity, while others were forced indoors and turned to gaming for (excuse the pun) consolation?
Automotive manufacturers, on the other hand, dialed back their production and so didn’t place chip orders. In the blink of an eye, their usual share was simply absorbed by other manufacturers desperate to meet the increased demand.
Then suddenly taking the bus with Joe Covid (oops, sorry, we meant Bloggs) wasn’t cool and people went back to buying new vehicles. This left automakers neatly checkmated. Producing a car is a complicated dance of suppliers, workforce, and demand coordination. Microcontrollers are woven into the very fabric of automotive construction and it is frankly impossible without them. It doesn’t help that most microchips used in vehicles come from one of two factories in China. This is why production has ground to a halt.
Now that we have a good idea of the reasons behind the current crisis, how is Porsche dealing with it? Fortunately, it has the backing of VAG (Volkswagen Audi Group) which has helped somewhat dissipate the effects of the shortage. It got this right by actually favoring the production of the higher end of the group. By prioritizing the more expensive brands in favor of higher profit margins. In doing this, VAG was able to post record profits for the first half of 2021.
The outlook isn’t all rosy though. Porsche CFO Lutz Meschke warns us that, ‘In spite of all this success, we are well-advised to keep both feet on the ground.’ The third quarter, which we have just broached, is crunch time. Audi cautions “…in view of the continuing shortage it is not expected to be possible to compensate in full in the course of the year for lost production.”
Since Audi are the biggest profit contributor to the group, it looks like Porsche is in it to finish the race to the end of 2021 on a good note. (Albeit not a totally triumphant one.)
Does this leave us? In our opinion, we are going to see VAG push to maintain a high production rate of Porsche since it pays dividends. This will mean that although there won’t be an oversupply, an excessive shortage is also unlikely. Ironically this means it’s neither a good time nor a bad time to buy the 911 GT3. Unless of course, you were planning on getting a Mustang instead…