Why the wheels are falling off the Carbon Revolution (ASX:CBR) share price today

About Latest Posts Brendon LauBrendon's passion for shares started by accident in 2003 and he has worked in various roles …

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The Carbon Revolution Ltd (ASX: CBR) is careening to a 14-month low this morning after it issued a profit downgrade.

The irony is that the surge in car sales is leaving the composite wheel maker behind in the dust, and you can thank COVID-19 for that.

The Carbon Revolution share price crashed 13.5% to $1.34 at the time of writing. The fall is on top of yesterday's 5.5% tumble – all of which came right at the market close.

Carbon Revolution share price is a wreck

This is because management released the disappointing news a few minutes before 4pm. It revealed that one of its major customers have suspended vehicle production due to the shortage of computer chips.

As a result, Carbon Revolution believes it will sell around 1,800 fewer wheels this financial year compared to FY20.

Management had previously forecast selling around the same number of wheels in FY21 as last year.

The customer in question is expected to restart its production line in late June.

Carbon Revolution share price in the slow land

The world-wide shortage of semi-conductor chips is driving up the price of vehicles around the world, including Australia.

The shortage of new vehicles has been met head-on with strong demand for cars. Consumers who can't travel and have limited alternative uses for their savings are spending big on new wheels.

The federal government is also pumping fuel into the tank. The extension of the instant tax write-off is also adding to demand for new vehicles.

ASX shares benefiting from car shortages

This is great news for the likes of the Eagers Automotive Ltd (ASX: APE) share price and Autosports Group Ltd (ASX: ASG) share price.

The lack of supply means car dealers do not have to offer discounts on new vehicles and can charge more for second hand vehicles that are ready for immediate delivery.

Auto parts makers are also smiling. The Bapcor Ltd (ASX: BAP) share price and ARB Corporation Limited (ASX: ARB) share price have also been outperforming over the past year.

Foolish takeaway

The supply chain dislocation is creating winners and losers in the auto industry. New car manufacturers and their suppliers are suffering, while dealers are revving up their engines.

But at least the headwind is temporary. It's a question of "when" and not "if" supply chains normalise to give the Carbon Revolution share price a chance to play catch-up.

On the other hand, the road to recovery could be a winding one. Just look at the ongoing impact of COVID-19 even when vaccines are being rolled out. Ask anyone in Victoria.

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Carbon Revolution Limited. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended ARB Limited and Carbon Revolution Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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