Nosedive

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What's going on?

Data out on Thursday showed European car sales dropped off a cliff this summer.

What does this mean?

The great chip shortage has been slowing production in all sorts of industries, but carmakers have been hit particularly hard. After all, they generally use less expensive and less profitable chips than, say, Big Tech, which has sent them to the bottom of a very long priority list. That means they haven’t been producing new cars nearly quickly enough to meet demand: they sold 24% fewer cars in July and 18% fewer in August than the same periods the year before. The shortage isn’t going away anytime soon either: German car giants Volkswagen, Daimler, and BMW have all warned that production shortages will probably last well into 2022.

Why should I care?

For markets: At least there’s a workaround. 

Still, shrewd car manufacturers have found a way to power through: they’ve been raising prices and upping production of their more profitable models. That might be why Ford and Toyota both posted stronger-than-expected results last quarter, as well as why investors are still so confident in them: their stocks are up 55% and 25% respectively this year.

The bigger picture: Cue the cost cuts.

Missing chips aren’t the only thing threatening car production, mind you: Europe’s record-high energy prices are poised to push up manufacturing costs, which could force carmakers to close factories in an effort to save money. They wouldn’t be the first: fertilizer producer CF Industries Holdings announced on Wednesday that it’s shutting down two of its plants.

Originally posted as part of the Finimize daily email.

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