Carmakers have had a rough time as of late. Not only have most automotive stocks tumbled this year, but it seems that they're hardly catching any breaks when it comes to getting production back to pre-COVID levels.
The latest sign that things still aren't back to normal yet comes from Honda (HMC 1.38%) recently saying that it's cutting production in Japan for some of its most popular vehicles. The reduction comes as Honda faces ongoing supply chain issues and a semiconductor shortage -- and it should serve as a warning to other automakers.
Image source: Honda.
Why Honda is cutting production
According to Reuters, Honda is cutting back vehicle production by up to 40% at its Saitama plant in Japan and 20% at a factory in Suzuka. The cutbacks will affect the production of its CR-V, Jazz/Fit, the Honda e, and its HR-V.
Honda named the usual suspects as the source of its cutbacks, including supply chain issues, logistical problems due to COVID, and a shortage of semiconductors.
While automakers have grown accustomed to production issues over the past few years, this latest slowdown comes just a couple of months after Honda had tried to ramp up vehicle manufacturing.
Investors of automotive stocks should take note that Honda's recent production slowdown is likely another indicator that more production cutbacks could be coming down the pipeline for its peers as well.
Other automakers aren't immune
While Honda is the latest automaker to cut its production, plenty of other automakers are warning that production still isn't normal. Consider these recent statements from Ford and General Motors:
- "... we have labor shortages and all sorts of things. The suppliers have been working nonstop during COVID, so machine maintenance and a lot of other things. We see the output of the stress in the supply chain." Jim Farley, Ford's president and CEO.
- And GM's management said in a July filing that it had built 95,000 vehicles that "were manufactured without certain components" -- mainly because of a semiconductor shortage -- some of which won't be completed until the end of this year.
Some automakers are optimistic that vehicle production will be able to ramp up through the end of this year. For example, Tesla says it could have record-breaking vehicle deliveries in the second half of this year.
But the fact remains that a massive chip shortage could continue to derail many automakers' production plans.
The latest estimates show that a chip shortage has affected the global production of 3 million vehicles so far this year and that a total of 4 million will be affected by the end of the year.
Put an asterisk next to production estimates
Clearly, Honda's latest production cutback isn't good for the company's stock. But investors should view Honda's production woes as yet another sign that the entire auto industry has yet to emerge from its production concerns.
While some automakers may be more optimistic than others about how they'll be able to deal with future disruptions, it's more likely than not that all carmakers will continue to face some level of production headwinds heading into 2023.
That doesn't mean auto stocks are a bad long-term investment, but investors can likely expect more share-price instability from car stocks for the time being.
