Car prices to rise as manufacturers battle huge supply struggles

Carmakers including Nissan and Toyota have warned that prices of new vehicles will have to rise after the industry flagged billions of additional raw material costs landing in the second half of the year as a result of global supply chain disruption. Reasons for the sharp hike in costs include the ongoing war in Iran that has increased both energy and freight prices; data-centre demand for memory chips; and the rise of protectionism, which is forcing companies to rebuild supply chains away from low-cost centres like China and Mexico. Carmakers flagged higher prices for plastics, aluminium, steel copper and chips among other raw materials, further frustrating their goal not reduce cost and rebuild tattered balance sheets. Renault said it was facing an additional bill of €400 million (£342m) from rising raw material costs as well as inflation for the second half of the year, double that of the first half. The company fears that costs will remain high. “When we have a spike in raw materials, we can find some ways with suppliers to mitigate it. But what we see today is that the increase is not just a spike. This is a trend,” Duncan Minto, chief finance officer of Renault, told investors on the company’s first half earnings call. Stellantis meanwhile flagged an additional bill of a billion euros for the second half of year shared between a rise in raw material costs and a non-repeat of US tariff refunds that benefited the company in the first half. “We expect that raw materials continue to be a headwind and growing in the second half versus what we saw in the first half,” Stellantis CFO Joao Laranjo said on his company’s first half earnings call. He warned of price increases in North America to offset the bill. Persistently high oil prices stemming from President Donald Trump’s Iran war that began late February and still isn’t resolved is increasing costs for all suppliers in terms of higher energy bills, with those making oil-based products hit doubly hard. “Due to the Middle East conflict and inflationary pressures, prices of key raw materials such as plastics have risen sharply,” Seung Jo Lee, Hyundai brand CFO, said on his company’s earnings call. Mercedes also called out the Iran war as a headwind that “added uncertainty to an already highly uncertain global economic and automotive market environment,” finance head Harald Wilhelm said. Raw material price rises will cost Mercedes around 1% of profit margin in the second half, Wilhelm said. The rising cost and lower availability of memory chips was flagged by a number of carmakers and suppliers, including Honda, Stellantis and Magna. “The cost is soaring because of supply-demand situation,” Sumihiro Takahashi, Honda’s head of accounting and finance, said. Memory chips are in high demand from AI data centres, which are squeezing out carmakers. “I identify memory chips as the biggest supply issue for automakers,” Pedro Pacheco, automotive analyst for consultant Gartner, told Autocar. “Tech companies are outbidding automakers, which is raising prices. Ironically, AI is in this instance working against the automotive industry.” Carmakers and chipmakers have a better handle on the situation now then directly after Covid, when they lost out following a surge in demand from the consumer electronic industry. However now it comes on top of a series of other supply chain shocks. Those include the rise of protectionism, led by US tariffs levied on parts made outside the country. That forces carmakers to shift suppliers, often increasing costs for both raw materials and the finished product. Meanwhile the European Union is gearing up for its ‘Made in Europe’ initiative to reward carmakers with high local content to exclusion of those who sought cheaper parts in places like China. Also in this category is China’s weaponisation of its dominant trade in rare-earth minerals. The rising number of supplier bankruptcies is another issue identified by Pacheco in forcing up costs. Recent high profile bankruptcies of parts makers Marelli and Grupo Antolini are bad news for carmakers, who either have to scramble to replace them or make a bid for elements of them to avoid disruption, as Stellantis and Nissan have reportedly done with certain Marelli assets. Carmakers are well used to dealing with disruption from financial crises, wars and natural disasters, but the way they are piling up at the moment is doing serious harm to supply chains that have never been so complex as cars become more high-tech. “It’s not so much about the depth of each of these crises but the fact there are many of them almost in parallel,” Pacheco said. Carmakers have no choice but to attempt pass some of the elevated costs to customers. Toyota warned that the higher material costs plus money spent to shore up its supply chain would cost the company the equivalent of seven billion euros this financial year ending March 2027. “We intend to recover roughly half of that through price revisions,” Takanori Azuma, head of the firm’s accounting group, said on his company’s earnings call early August. Nissan also said it would have to raise prices and flagged similar reaction from competitors. It was another gloomy round of earnings calls for companies, who are buffeted in ways that’s becoming harder and harder to plan for. “Geopolitical issues, intensifying competition and tariff policies continue to create a challenging business environment,” Hyundai’s Seung Jo Lee said. “Global automotive companies are facing unprecedented difficulties.”

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Car prices to rise as manufacturers battle huge supply struggles

Geopolitical issues, artificial intelligence boom and more challenges all drive up the cost of materials

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Car prices to rise as manufacturers battle huge supply struggles

Geopolitical issues, artificial intelligence boom and more challenges all drive up the cost of materials

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About Autocar