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The Auto Sector Slows: Chip Shortage or Demand Weakness?

China’s auto industry was a key driver of growth in the second half of 2020, but has started to drag on the economy this year. Both sales and output growth are reporting double-digit declines, which are expected to continue through Q3, at least. The shortage in semiconductors for the auto sector is the primary factor behind the decline in output, particularly for passenger cars. However, the push for more electric vehicles is also increasing demand for chips and extending the drought in inventories. On the demand side, truck sales are slowing more than those of passenger cars, in line with the weakness in construction momentum. The slowdown in auto sales and output is likely to weigh upon headline cyclical indicators for the remainder of 2021.

Posted August 4, 2021
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