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Five Key US Auto & Auto Parts Themes in 2022

Inventory improved m/m for a third consecutive month. We appreciate investor concern regarding declining SAAR (Seasonally Adjusted Annual Rate) despite easing inventory constraints. We see this likely as a function of continued cuts in incentives / rising prices. It reminds us that prices will need to decline somewhat to trigger volume recovery. Yet the most critical development we saw was the continued rebuild of inventory, which should eventually drive recovery in SAAR.

Our research outlines five critical themes for the US auto industry in 2022. Despite easing supply constraints, supply limits will still define 2022 SAAR. Very simply, we believe the theme of 2022 auto sales will be the continued emergence from the supply pressures, which limited 2021. We saw this theme emerge in recent months as supply started to improve off trough levels. We believe that continued supply recovery, together with easing prices, should help drive volume comparisons higher as the starting point for 2022 comparisons is relatively low.

US light vehicle gross stock ended 2021 with clear improvement vs recent months, when supply dipped to all-time lows. Inventory should continue to build through the year. We believe it is critical to note that the rebuild of inventory from significantly depressed levels coupled with a release of pent-up demand could cause the inventory rebuild to continue into 2024.

EV is still a small % of new car sales. EVs (BEVs + PHEVs) accounted for 4% of new car sales in the US in 2021, up from 2% in 2020. US EV uptake took a step forward in 2021, and we expect further progress in 2022 as inflection starts to take hold. The US continues to trail Europe and China, where regulation/government support and consumer demand have created a more favorable environment. We believe an improved market environment is emerging for EVs in the US.

@Dan Levy