Materials pricing pressure mounts

1 min read

The latest round of profit forecasts has highlighted the growing impact of surging material costs and ongoing component shortages.

Electronics giant Panasonic has said that operating profits are likely to remain flat over the next 12 months with both rising costs and component shortages posing a risk to earnings.

Panasonic makes products ranging from washing machines to industrial machinery and while it has seen material prices surge it has said that it won’t be able to pass those price rises on to customers – hence the expected hit to earnings.

Panasonic, which also supplies batteries to the likes of Tesla, has also warned that rising costs of key materials could impact battery supply going forward, which mirrors similar worries expressed by Stellantis, one of the world’s biggest car manufacturers. The company warned that battery shortages could start impacting the automotive industry as soon as 2025.

According to Stellantis, increased demand for electric vehicles could soon out pace current battery production, despite a string of significant announcements concerning investment in new battery plant capacity.

With ongoing semiconductor shortages, the automotive industry seems to be confronted by a never-ending and lengthening list of supply chain bottlenecks.

Toyota, for example, has warned that "unprecedented" hikes in raw material costs could cut full-year profits by as much as a fifth.

So, it appears that the automotive industry, and its certainly not alone in this, seems likely to have to grapple with an extended supply chain crunch that could last for years.

While Toyota was initially able to handle chip shortages, having built up stocks of components prior to the Covid pandemic, it now appears that this global turbulence is now seriously impacting both production and profitability.

With material costs soaring Toyota has warned that the broader industry, whether original equipment manufacturers or suppliers, will need to work more closely together and, according to CFO Kenta Konbe, Toyota will need to reduce the amount of materials used as well as replacing them with less expensive alternatives if it is to better manage material price hikes.

With global inflation heading for double figures and likely to persist for far longer than many originally expected, Toyota won’t be alone in having to fundamentally rethink how and where it sources its materials.