Automakers thrived in 2021 despite chip crunch, flat sales, rising materials costs

Major automakers posted record profits last year despite facing a triple threat: the COVID-19 pandemic, semiconductor shortages and higher commodity prices.

According to calculations by Automotive News Europe, total operating profits (before interest and taxes) at the largest European, U.S. and South Korean automakers more than doubled to 104.3 billion euros ($115.2 billion) in 2021 from 46.5 billion euros in 2020. Net profits grew to 90.2 billion euros from 21.7 billion euros, an increase of 315 percent.

Japanese automakers, where the fiscal year typically ends on March 31, were also on track for huge profits after the first three quarters.

Automakers were able to benefit from a number of factors in 2021 – largely the ability to command higher prices for their products due to the chip shortage -- but the Ukraine crisis may make it difficult to repeat.

For this article, ANEurope examined annual and quarterly reports of 10 selected automakers: BMW, Ferrari, Ford Motor, GM, Hyundai-Kia, Mercedes-Benz, Renault, Stellantis, Tesla and Volkswagen (see chart, below).

By region, European automakers saw total profits grow by 130 percent to 69.5 billion euros ($76.8 billion). Net profits grew by 285 percent to 54 billion euros, thanks partly to the 9.2 billion euros of extraordinary profit booked by Mercedes-Benz on the spinoff of Daimler Trucks. Mercedes said revenue increased by 30 percent in 2021, boosted by sales of high-end models from its Maybach and AMG sub-brands.

Shareholders benefited from automakers’ haul: European automakers said they would pay a total of 16.5 billion euros in dividends, equal to 30 percent of net profits, after paying lower or no dividends in the pandemic-scarred 2020 fiscal year.
 
In the U.S., profits rose by 113 percent to $30.8 billion. And South Korea’s Hyundai Group (including Kia) reported a 114 percent increase to 11.75 trillion won ($10.5 billion). 

Volkswagen was the most profitable Europe-based group, with a 19.3 billion-euro operating profit, just ahead of Stellantis (18 billion euros) and Mercedes-Benz (16 billion euros, not including Daimler Trucks, which was spun off in 2021).

Among U.S. groups, GM’s profits rose by 47 percent to $14.3 billion, and Ford Motor’s profits were up 260 percent to $10 billion. Tesla’s profits grew from 2 billion to 6.5 billion dollars.

Major Japanese carmakers posted significant profit growth in the first nine months of their 2021-2022 fiscal year (from April 1 to Dec. 31, 2021). Toyota, Nissan and Honda saw their total operating profits rise 86 percent to 3.4 trillion yen ($28.4 billion).

Toyota was on course to confirm its position as the most profitable global carmaker: operating income was 19.5 billion euros through December 2021 -- more than VW made in the full year.

As a percentage of revenue, operating margin also grew sharply. In Europe, the average margin was just under 10 percent (up from 4.8 percent), similar to that of U.S. automakers, which was 9.7 percent, up from 5.2 percent in 2020. Hyundai Group’s margin grew to 6.3 percent from 3.4 percent. Japanese automakers recorded an average 8.5 percent margin in the April-December period.

Revenue was the main driver of the increased profitability: Revenues grew 12 percent in Europe, 13 percent in the U.S. and 15 percent in South Korea, despite stagnant or falling sales. 

That was because automakers were able to get consumers to pay more for cars, through higher list prices and cuts in incentives, largely because a lack of semiconductors sharply reduced production.

Automakers funneled their limited chip supply to more expensive models, improving the price mix and raising their profit margins.

Two-digit price increases in some markets and segments more than offset the impact on margins from lower volumes and the cost of electrification. For example, Stellantis saw average transaction prices rise by 20 percent in the U.S. retail market, driven by both showroom price increases, a drop in incentives and a richer mix. 

Cost-cutting also helped. Stellantis, in its first year after it was created by the merger of PSA Group and Fiat Chrysler Automobiles, reported 3.2 billion euros in net cash synergies, a higher-than-expected figure. Stellantis CEO Carlos Tavares told analysts that the group has lowered its break-even point to less than 50 percent of its unit sales. 

Renault, which has already cut billions in operating expenses since 2020 as part of its own cost-cutting plan, said it was able to lower its break-even point by 40 percent two years ahead of schedule.

It’s not clear if automakers can repeat their 2021 performance this year. Russia’s invasion of Ukraine in late February brought new strains to the supply chain and set off multiple production stoppages among European automakers. 

The war could deliver a new shock to the global economy just as many countries are dealing with inflation levels not seen in decades. On Friday, Allianz said it had revised downward the eurozone’s GDP growth forecast for the year to 2.6 percent from 3.8 percent and inflation upward to 5.5 percent from 3.8 percent, adding that household purchasing power “stands to take a notable hit.”

BMW, for example, last week cut its 2022 margin guidance to 7 to 9 percent from 8 to 10 percent, citing the war’s effect on supply chains and on the global. 

While most automakers have minimal exposure to Russia, Renault’s controlling stake in Lada parent AvtoVAZ accounts for a large part of group profits. Moscow has threatened to repatriate assets of companies that pull out of Russia because of the war, a scenario that could have a serious impact on Renault’s comeback from record losses in 2020.