Heavy Vehicles

Zita Zigan, Director, Global Vehicle Forecasting

04 March 2021

Truck photo

Are the chips down for Trucks?

Any hope that the Heavy Vehicle sector might escape unscathed from the cascading global semiconductor shortage was dashed with Volvo’s announcement that it would be forced to adapt production at least during the first quarter of 2021. Since then, the OEM has halted production at its factory in Ghent (Belgium) and warned of further stoppages. At least one week’s output is understood to have been lost in February at the Belgian facility, which manufactures Volvo’s full range of Medium and Heavy Trucks.

There is no reason to suppose that Volvo’s situation is in any way unique, or that other OEMs’ production schedules will not be affected by strained supply chains. Although no production downtime has been reported – yet –, the industry is monitoring the situation closely, and output is starting to be reallocated from parts and aftermarket to new vehicle production in some cases.

Truck manufacturers have reported extremely strong rebounds in order volumes during the second half of 2020, and especially in Q4, with Volvo and Daimler reporting year-on-year increases in their global order intakes of 61% and 56%, respectively. The strongest rebound is occurring in North America, though demand has also picked up significantly in Europe and South America.

High orders, combined with lean inventories, as well as other supply-chain issues (tyres, steel) will mean that deliveries will be lagging considerably behind orders at this point.

The supply crunch is expected to be concentrated in Q1, but it will linger into Q2 and possibly beyond. With lead times of six to nine months, semiconductor foundries will have limited capacity to meet the rapid rise in demand in the near term. Supply chain agility and distribution efficiency can only go so far when overall supply of the critical component is limited.

In view of the increasing concerns around the shortage, we have reduced expectations for H1 2021. In Europe, this has taken the form of reallocating an element of anticipated production from H1 into H2. The North American forecast, meanwhile, has not been increased further this month – as it would otherwise have been on the basis of red-hot order flows.

It is still difficult to say how the Medium and Heavy Commercial Vehicle sector will fare compared to Light Vehicles. While it may still be true that Truck assembly tends to require fewer microchips (and fewer customised chips) than Light Vehicle assembly, trucks have become increasingly complex and sophisticated entities, with the massive drive towards electrification over the past year or two contributing to requirements for electronic components. Particular concerns revolve around processors used to control engines and emissions. Longer lead times may be a mitigating factor for the industry as this would grant better visibility on orders. The sector is, nonetheless, exposed to the current shortage, and we expect some effects of this to become visible in data flows before long.