Due to supply chain problems, automakers have paused or slowed production of new cars over and over throughout 2021. A limited nationwide stock of new cars has pushed prices to record highs. Now there may be a new threat on the horizon that could make the situation worse.
Aluminum Alloy Shortage Possible
Financial Times reports, “The world’s largest carmakers could face a potentially crippling shortage of aluminum, as China’s power crisis threatens supplies of a key component used to make the lightweight metal.”
Magnesium is a key element in aluminum alloys. Aluminum alloys appear in nearly every component of modern cars, from body panels to gearboxes to seat frames. Thanks to its light weight, it has replaced steel in many automotive applications.
Prices Already High Thanks to Microchip Shortage
The situation “threatens to worsen a supply squeeze that already has pushed U.S. prices close to all-time highs,” according to a Bloomberg report. A global shortage of microchips has limited the production of new cars worldwide. Dealers currently hold about 40% of the inventory of new cars for sale that they held one year ago.
Reuters explains, “High power prices in China and Europe have hit producers of metals including aluminum, silicon, and zinc, causing a sharp rise in prices and tighter global supplies.” Many producers have simply shut down because they can’t profitably operate plants under current conditions.
About 85% of the world’s magnesium supply comes from China. In a recent report to investors, Barclay’s analyst Amos Fletcher explains, “If magnesium supply stops, the entire auto industry will potentially be forced to stop.”
So Far, Just Media Reports
We should caution that no automaker has warned that the magnesium supply could threaten their production.
But the association representing Germany’s metals industry warned its government in a letter Tuesday that “the current magnesium inventories in Germany and respectively in the whole of Europe will be exhausted by the end of November 2021.”
A Matter of Cost, Not Material
America has its own magnesium production facilities, though it gets most of its metal from China. That could allow American automakers to pursue alternative sources to keep production running. But if that solution weren’t more expensive, they’d already be doing it.
It’s also worth noting that the globe has no shortage of magnesium. The current Chinese energy crisis means the metal is more expensive to produce than normal. But there’s plenty of it. Production could resume at a higher cost.
We’ll keep our eye on the situation. In the meantime, buyers who plan to wait out current high car prices should be aware that the wait could be longer and more complicated than previously known.
