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AUTO INDUSTRY Global chip shortage threatens auto industry supply chains

From Luke James |

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Some of the world’s biggest automakers are facing a critical shortage of the semiconductors they need to build their cars. The shortage could put a complete stop to production in certain parts of the world at a time when the industry is trying to recover from the pandemic.

The automotive industry is suffering the consequences of the COVID-19 pandemic, as its demand for semiconductors cannot be met due to production disruptions.
The automotive industry is suffering the consequences of the COVID-19 pandemic, as its demand for semiconductors cannot be met due to production disruptions.
(Source: gemeinfrei / Unsplash)

Volkswagen, Ford, Fiat, Nissan, and Toyota are just a few of the major automakers that are suffering from a global shortage in critical chips that are used in a growing number of automotive applications, from advanced driver assistance systems to infotainment and navigation technology.

A worldwide chip supply issue

The shortage has in large part been caused by the ongoing COVID-19 pandemic, which massively disrupted production during the first half of 2020. This led to a reduction in manufacturing investment and caused fluctuations in many industries that rely on semiconductors.

Consumer demand for automobiles also fell in the face of stay-at-home orders, prompting semiconductor manufacturers to prioritize non-automotive applications such as consumer and enterprise electronics, such as games consoles, laptops, televisions, printers, computer monitors, and networking equipment to meet the demand for them, which shot through the roof as businesses and schools switched to remote operation.

As 2020 progressed and demand for automobiles rose, the automotive industry has started to bounce back from the disruption caused by COVID-19 - China’s market especially, which demonstrated a spectacular recovery in the second half of last year.

This has come at a heavy price, however. The sudden rebound has seen demand far outpace supply, leaving car companies facing a big shortage in chips. And with limited production capacity, chipmakers cannot simply just churn out more chips. Instead, automakers have had to pause or completely shut down their production on some lines as they wait for chip deliveries to catch up with the demand they’re facing.

“This is absolutely an industry issue,” said Toyota spokesman Scott Vazin to the Associated Press. Toyota partially halted production in China on January 11 before resuming it the next day.

Semiconductor demand in different markets, January – November 2020.
Semiconductor demand in different markets, January – November 2020.
(Source: Panijva - S&P Global Market Intelligence)

Automakers now seeking government help

With many workers furloughed still, automotive executives are pleading for government help in a bid to try and accelerate chip supplies.

In the U.S., automakers have asked the U.S. government to help solve the shortage. The American Automotive Policy Council (AAPC), which acts as the lobbying organization for automakers like Ford and General Motors, is currently pressuring the U.S. Commerce Department to step in and encourage Asian chipmakers to move output focus away from consumer electronics.

Meanwhile, Germany has asked Taiwan to encourage Taiwanese manufacturers to play their part in helping ease the shortage. In a letter reported by Reuters on Sunday, January 24, Germany’s Economy Minister Peter Altmaier asked Wang Mei-hua, Taiwan’s Minister of Economic Affairs, to address the issue by talking to Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world’s largest contract chipmaker.

“I would be pleased if you could take on this matter and underline the importance of additional semiconductor capacities for the German automotive industry to TSMC,” Altmaier wrote in the letter.

In response, Wang Mei-hua - who has met with executives from TSMC and other large chipmakers - has said that Taiwanese chipmakers are willing to prioritize supplies for automakers in a bid to help solve the supply shortage for production in the U.S., Europe, and Japan. These chipmakers are prepared to negotiate with clients of other products to see which of them are willing to delay or cut their orders so that chipmaking efforts can be focused on automotive, she says.

A positive outlook?

Around 10 percent of semiconductor production plants are used for automotive parts, with the rest going to the likes of consumer and enterprise-grade electronics. This means that carmakers have relatively little negotiating power as electronics giants, for instance Bosch.

While the outlook for automakers was initially gloomy with no immediate, short-term fix available (the semiconductor industry typically isn’t flexible enough to respond to short-term market changes), the willingness of TSMC and other Taiwanese chip giants to step in provides a glimmer of hope that the supply shortage could be over sooner rathe r than later.


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