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GLOBAL CHIP SHORTAGE Update: These are the latest developments on the chip shortage

| Updated on 14.10.2021Author / Editor: Luke James / Nicole Kareta

The ongoing chip shortage has had an impact on virtually every industry, sending traumatic ripples throughout global supply chains. From automobiles to games consoles and power supplies to graphics processing units, very few have been left unaffected. Here’s a look at the latest developments.

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The worldwide semiconductor shortage is expected to last until Q2 2022 at the earliest. This article will keep you up to date on the latest developments.
The worldwide semiconductor shortage is expected to last until Q2 2022 at the earliest. This article will keep you up to date on the latest developments.
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COVID-19 has caused problems for virtually every supply chain around the world. Long before the pandemic, however, the semiconductor supply was extremely fragile and inflexible. Over the last few years, a series of problems, along with the impact of the pandemic, has caused a chip shortage that is having a severe global impact.

From trade wars and geopolitics to natural disasters and a materials shortage, semiconductor production has been decimated and chipmakers are facing major woes as a result. This is all taking place while major countries and companies are in the race to lead global chipmaking. However, today’s chip market is extremely volatile, and this will continue to have an impact on chipmakers and lead to shortages for years to come.

Global chip shortage - new updates

How are companies responding to the chip shortage and what are policymakers commenting? Here we sum up the most important events related to the global chip shortage.

Chip shortage may force VW’s ‘Skoda’ production to pause...

Skoda Auto, which is part of the Volkswagen (VW) Group and the Czech Republic’s largest exporter, is set to significantly reduce—or potentially pause—production from the week beginning October 18th due to the global shortage of chips that’s currently crippling the automotive sector. This halt on production could last until the end of the year. “Not even Skoda Auto is able to avoid this global crisis,” Skoda Auto spokesman Tomas Kotera said in an emailed statement.

As has been widely reported, automakers around the world are currently battling with a shortage of crucial semiconductor chips following a post-pandemic rise in demand. This is hampering the Czech economy and many others in central Europe that have large automotive industries. Kotera says that the main reason for the hit to Skoda’s production is the large number of unfinished vehicles that are currently waiting for chips. “We, therefore, are first concentrating on finishing these vehicles so that we can get them to customers at the soonest,” he added.
Skoda is the backbone of the Czech Republic’s automotive industry, employing over 180,000 people and making up over a quarter of the country’s industrial output. The company has committed to maintaining jobs and wages for its employees during the production freeze.

...also carmaker Opel affected by the production stop until early 2022

Opel has announced that it will be halting all operations at its Eisenach plant in Germany until the start of 2022 as the global semiconductor shortage holds back production, the automaker has announced. This halting of operations has seen the construction of the company’s ‘Grandland SUV’ stopped in Germany, and employees have reportedly been told that they will have their shifts reduced to part-time work. Opel’s employees have been voicing their frustrations amid the revelation that the automaker will continue manufacturing its SUV at another facility in France.

"It is very concerning when the plant stands still for months and when you know production will continue elsewhere instead. It feels like a betrayal to us," an Opel employee said. About 1,400 people work at the plant in Eisenach.
While the German economy has bounced back sharply from the impacts of 2020’s pandemic-led shutdowns, with gross domestic product in Q2 2021 showing a 9.4 % increase over Q2 2020, major automakers have all experienced problems getting the semiconductors they need to make their cars. These manufacturers include many big names such as BMW, Daimler, and Volkswagen. Opel says the factory should return to its full capacity in the new year.

2022 Geneva International Motor Show canceled due to chip shortage

The 2022 Geneva International Motor Show, which was scheduled for February, has been canceled due to ongoing uncertainty surrounding the COVID-19 pandemic and the global chip shortage - two factors that have crippled the global automotive industry.
“We have pushed very hard and tried everything to reactivate the Geneva International Motor Show in 2022,” Maurice Turrettini, who runs the committee in charge of the show, said in a statement published on Thursday, October 7.

The Geneva International Motor Show is renowned for being a showcase for cutting-edge supercars, concepts, and prototypes. “Despite all our efforts, we have to face the facts and the reality: the pandemic situation is not under control and presents itself as a big threat for a large indoor event like GIMS. But we see this decision as a postponement, rather than a cancellation,” Turrettini added.

The Geneva Motor Show was one of the first big auto shows to get canceled in early 2020 before the spread of the then novel coronavirus had been officially designated as a pandemic. CEO of the motor show, Sandro Mesquita, said that the chip crisis is likely to continue into next year, and that original equipment manufacturers will face financial problems as a result. This means that, with only four months to go, many automakers are unable to make a commitment to participate in the trade show.

Chip shortage is ‘perfect storm’, says Audi CEO—but we’ll get through it

Premium automaker Audi, which is the Volkswagen Group’s biggest money maker, is having to find ways to tackle the ongoing semiconductor shortage on a day-to-day basis, said CEO Markus Duesmann when speaking to Reuters.
"We had a very strong first half in 2021. We do expect a much weaker second half. We really have trouble," he said, calling the shortage a “perfect storm”. Duesmann’s comments on the shortage highlight the problems that global automakers are facing while trying to get around a global chip shortage that has put the brakes on worldwide car production. But while vehicle sales have suffered and waitlists have grown longer, the blow has been softened by inflated vehicle prices which have boosted margins for automakers.

In July, Audi said that it had been unable to build 50,000 vehicles in the first half of the year. Despite this, its profit margin in the same period surged to 10.7 %, surpassing its 8 % profit margin for the same period in 2019. "We are dealing with it pretty well I would say," Duesmann acknowledged. He said the Volkswagen group was seeking closer ties with chipmakers and that the carmaker would emerge stronger from the crisis. "But at the moment it's a day-to-day troubleshooting process.”

AMD CEO is optimistic that chip shortage will ease by late 2022

It hasn’t been the easiest time for the chip industry, with almost everyone from automakers to PC enthusiasts feeling the pinch. A global shortage of silicon has affected the supply of core components, including virtually all graphics cards, high-end CPUs, and even some power supplies. According to AMD CEO Dr. Lisa Su, however, things should improve by the second half of 2022.
"We've always gone through cycles of ups and downs, where demand has exceeded supply, or vice versa," Dr. Su said at the Code Conference in Beverly Hills, California. "This time, it's different."
Dr. Su points to a combination of the pandemic, new product launches, and the cryptocurrency mining trend for creating the perfect storm for an ongoing shortage. The pandemic in particular, she says, has taken demand to a new level; more people found themselves working and learning from home, which drove demand for personal computers and laptops.

While AMD doesn’t manufacture its own chips, it does design them and then contracts external fabs such as TSMC, which itself is investing billions of dollars into setting up new chip manufacturing facilities. This is why Dr. Su is optimistic—“It might take, you know, 18 to 24 months to put on a new plant, and in some cases even longer than that. These investments were started perhaps a year ago,” she said. According to Dr. Su’s estimations, this means that we should start to see some relief from the chip shortage in the second half of 2022. This position is in line with comments she made in the summer when she admitted that through its manufacturing partners, AMD was increasing capacity with each passing quarter.

Malaysia lockdown restricts aluminum manufacturing—piles on chip shortage

Southeast Asia is a critical player in the global semiconductor packaging and testing industry, with several countries contributing materials, equipment, IP, and products that are used in the chipmaking process. Malaysia alone accounts for 13 % of global chip assembly testing and packaging, and 7 % of the world’s semiconductor trade passes through here. Unfortunately, the COVID-19 pandemic still very much has Malaysia in a chokehold; infection rates continue to soar and plans to lift local lockdowns have been thrown into disarray. This has had an obvious impact on local semiconductor trade capacity. Although Malaysian authorities have granted exemptions to certain manufacturers, operations are restricted at 60 % of the workforce, and this will only return to 100 % when more than 80 % of workers are fully vaccinated.

This has led to a crippled supply of aluminum capacitors, which only serves to pile more difficulty on top the already severe chip shortage. Aluminum capacitors are a key component in 5G infrastructure, consumer electronics, electric vehicles, and renewable energy technology. Unfortunately, leading suppliers of aluminum capacitors have been dealing with the shutting of operations their facilities, making it harder to meet demand. Industry sources believe that shipments of aluminum capacitors from Malaysia could drop by between 30 and 60 % due to the local COVID situation. At present, lead times have increased to over six months.

Tesla Shanghai builds 300,000 cars from Jan-Sept

In an announcement made during the same week that General Motors and Ford announced that they’ve had to suspend production yet again, citing a lack of vital microchips, Tesla Shanghai has announced that it has built 300,000 cars between January and September. By the end of the year, the company estimates that 450,000 of Tesla’s electric vehicles will have been produced amidst the worst microchip shortage on record, with most of this rolling stock poised for sale to the Chinese market. According to a report from the China Passenger Car Association, the Tesla Shanghai mega factory managed to build 240,000 units of the Tesla Model 3 economy car and the Tesla Model Y crossover SUV during its first three months of operation.

Meanwhile, Elon Musk attended an Italian technology conference and made comments indicating that the chip shortage will be a short-term issue. “There’s a lot of chip fabrication plants that are being built, and I think we will have good capacity by next year,” he said, clearly confident in his company’s ability to meet demand in spite of a crisis that has most large automakers in a stranglehold. Despite Musk’s confidence, chipmaking giants like Intel and TSMC have repeatedly stressed that their new chip foundries and manufacturing plants will not be operational any time soon, until late 2022 at the earliest, casting doubt over his high hopes.

UK demand for used cars rockets amid chip shortage

New figures from the UK Society of Motor Manufacturers and Traders (SMMT) have revealed that demand for used cars has soared in recent months.

The figures show that April to June 2021 was the “best ever second quarter” for the used car market, with over 2.1 million used cars changing hands—this is a rise of 108.6 % when compared to Q2 2020. In comparison to Q2 2019 figures, the increase is a more conservative 6.6 %.
Year-to-date, the used car market has grown by 33.3 % when compared to the first half of 2020. However, it remains 4.9 % down (some 200,000 units) when compared to the same period in 2019.
According to the SMMT, this significant uptick is primarily down to the easing of lockdown restrictions in the UK, an increased demand for personal vehicles, and a shortage of new car stock due to the ongoing chip shortage. This has fundamentally restricted the ability of manufacturers to ramp up automobile production to pre-pandemic levels.

In many cases, those looking for new cars are facing longer lead times compared to what would be considered normal, and some cars are even being sold without certain features that rely on microchips.

"More motorists are turning to used cars as supply shortages continue to affect the new car market, and the increased need for personal mobility with people remaining wary of public transport as they return to work,” said Mike Hawes, chief executive of the SMMT.

Chip shortage may turn into an oversupply by 2023, says IDC

Semiconductor supply could see a huge spike in growth over the next couple of years. This is according to a report by the IDC, which states that there’s “potential for overcapacity in 2023” as manufacturers put their operations into overdrive to meet rising demand and overcome backlogs that are currently crippling key industries.
IDC says that if chipmakers can do this, it would turn the situation on its head and lead to a significant shift from the current chip shortage into one of a potential supply surplus.

Several manufacturers, including many big names like TSMC, Intel, and Samsung, have announced plans to build new advanced chipmaking facilities. The U.S. government has also stepped in and recently passed legislation to bolster domestic chipmaking operations. While building foundries is great, it’s important to remember that they cannot be built overnight. Most of the increased capacity from these expansions won’t lead come to fruition until mid-2022 at the earliest. Although it may well be another year or longer until chip supply begins to catch up with demand, news like this is certainly a welcome change to the usual shortage doom and gloom.

Honda production capacity drops to 40 %

Honda has said that its factories in Japan have been operating at only 40 % of capacity in August and September due to shortages of semiconductors and other components caused by the COVID-19 pandemic. Despite the grim figures for August and September, Honda has said that it expects production to rebound to around 70 % capacity in early October.
"We are doing what we can to minimize the impact on production, but the situation remains unclear," a spokesperson for the company said.

The announcement from Honda comes soon after Toyota announced on September 17 that 27 out of 28 lines across its 14 Japanese plants would be suspended for at least 11 days in October. Toyota pointed to a shortage of components needed to make its chips due to the pandemic.
According to market research firm HIS Markit, semiconductor shortages and the delayed packaging and testing of chips will cause global light vehicle production to drop by 6.2 percent this year, or five million vehicles.

Infineon opens new chip factory three months ahead of schedule

Infineon Technologies, a leading supplier of chips to the auto industry, has just launched a €1.6 billion (US$1.9 billion) plant in Austria, three months ahead of schedule. The plant is located in Villach, and it’s anticipated that it will boost the semiconductor company’s ability to supply power chips to customers in automotive, data center, and renewable power generation.

The news that Infineon is expanding its power chip capacity comes at a time when global semiconductor supply chains are under unprecedented stress. Most major automakers have already been forced to strip back production due to the supply bottleneck, with Volkswagen AG’s truck division Traton SE being the latest manufacturer to warn that the shortage is jeopardizing deliveries.

Infineon itself has faced problems meeting delivery commitments after a winter storm took down one of its U.S.-based plants and coronavirus disruptions caused problems for Malaysian operations.
"Our timing in adding new capacity couldn't be better, considering growing demand for power-management semiconductors," said Infineon CEO Reinhard Ploss at the plant’s official opening ceremony.
The extra production of specialist power chips in Austria will serve growing demand for electric vehicles, solar power facilities, and data centers. However, analysts warn that it won’t help to alleviate chip shortage woes in the short-term.

Chip shortage could last into 2023, says Daimler boss

The chip shortage that is currently strangling global car production could continue into 2022 and even 2023. This is according to Daimler chairman Ola Källenius, who is also the head of Mercedes-Benz. While the auto industry staged a quick recovery from the COVID-19 pandemic, it has been failing to meet demand from customers.
The chip shortage has already caused several shutdowns of car making facilities around the world, including in Germany, the U.S., the UK, and Malaysia. "Chip producers say this will bleed into 2022 from a structural point of view and then gradually get better," he said, speaking to the BBC.

While Källenius acknowledged that this could mean shortages last into 2023, he is hopeful that they won’t be at the same level of severity that we’ve witnessed this year. He added that while Covid had been a “traffic jam” for the car industry and that it will take a while to get things moving at pre-pandemic speeds again, the fast recovery of the car market is good news for the industry on the whole despite current disruptions.

Chip shortage continues as more plant closures and order backlogs hit automakers

Chip manufacturers are continuing to struggle in the wake of pandemic- and natural disaster-led disruptions, with a cascade of factory closures across Asia, Europe, and North America exacerbating the shortage and preventing automakers from getting on top of their order backlogs. To make matters worse, continuing problems in global shipping and supply chains are adding further pressure and dragging out delays.

Recent estimates of the likely impact on car production because of the shortages have increased dramatically over the last few days. According to the latest survey by AutoForecast Solutions, 9.5 million vehicles may be lost because of the ongoing problems. This is almost 1 million higher than predictions made last week.

Automakers are beginning to worry that the trend could become longer lasting or even permanent as chip manufacturers cut production of automotive chips and prioritize more lucrative tech and telecoms chips. Even Toyota, which has been less affected by the shortage due to its close ties with suppliers, is starting to feel the pinch. The Japanese car maker was forced to cut its annual output target by 3 % on Friday due to factory closures in Malaysia.

Things aren’t looking good in the U.S., either. Ford and General Motors have reduced shifts at multiple factories nationwide in August and September. This translates to a huge drop in sales, with Ford reporting a 33 % drop in August compared to last year.

Background to the chip shortage - how it all began

It’s safe to say that a lot has gone on between the start of the chip shortage and the present day. While the chip shortage is considered to have “officially” started in 2020, several key events in the years immediately prior to 2020 significantly contributed to the problems chipmakers now face.
Below is a very brief breakdown of the key events that have taken place since the start of the U.S.-China trade war in 2018 and the present day.

2018 and 2019: Trade wars cause supply chain uncertainty

Since 2018 during the Trump Administration, a politically motivated trade war has existed between the U.S. and China. “The trade war took direct aim at Beijing’s ambitions to become a leader in advanced manufacturing technologies such as semiconductors and electric vehicles," wrote Josh Zumbrun in the Wall Street Journal in May 2021.

Even prior to the pandemic, this de facto trade conflict led to a great deal of turbulence and uncertainty for chipmakers and added to the concerns of analysts that geopolitics could severely hinder manufacturing and distribution.

The first round of U.S. trade tariffs hit Chinese imports in 2018 and focused on raw materials such as silicon. Tariffs like this had a ripple effect and led to a shortage of 8-inch wafers in late 2019. This shortage continues today and has had a severe impact on the automotive industry. Other tariff-induced problems were supply chain problems for foundry equipment and increased end-product demand.

Over time, the U.S.-China trade tensions led to the hoarding of wafer supplies when the U.S. blacklisted China’s SMIC in 2020. With so many key parts of the chip supply chain hindered, U.S. industries reliant on semiconductors—which is virtually any that produces anything electrical—were concerned that restrictions on Chinese imports would force China’s hand and lead to the development of their own semiconductor manufacturing ecosystem. And that’s exactly what happened.

Tensions also escalated in late 2019 when the Chinese government announced that a $75 billion tariff would be placed on U.S. goods. While an agreement between the U.S. and China was made in 2019 that included changes to China’s trade regime, this was later shrouded with uncertainty. By the end of 2020, China and the U.S. had only achieved 58 % of targets for U.S. exports to China under phase one of the agreement. The Peterson Institute for International Economics said China had "failed spectacularly" to meet its import targets, adding that the deal was for the most part a failure.

Then along came the COVID-19 pandemic. This added a whole new dimension of problems for the chip market.

2020: COVID-19 decimates chipmakers

The pandemic played a huge role in the chip shortage. According to several analysts, including Glenn O’Donnell, the vice president research director at Forrester, this was largely due to skyrocketing demand for cloud computing services from providers like Microsoft Azure and Amazon Web Services. “They [the service providers] buy a lot of chips,” he said in a blog post.

“Mobile phone sales remain hot. Makers like Apple, Samsung, and Huawei buy lots of chips. PCs are hot … Piled atop all that is a shortage of GPUs and other chips gobbled up by cryptocurrency gluttons. Demand is hotter than ever, and it's only getting hotter,” he added. Essentially, anything that’s got a power supply or a battery requires chips to work.

Owing to this demand surge, industries had to scramble to meet supply and demand in a highly uncertain and volatile economic climate. For chipmakers, production was halted for almost half of 2020 due to government shutdowns and COVID-19 restrictions. This piled onto the shortage to such an extent that by the time production resumed, semiconductor companies were well behind and had to adjust to severe demand pressure from various sectors.

The automotive sector was the prime example of this. It was a huge demand surge as consumer purchasing behavior shifted in the second half of 2020. As economies began to re-open, consumers dodged public transport due to the pandemic and started purchasing their own vehicles. This shifted the focus from consumer electronics and to automobiles, causing shortages in 8-inch wafers and ABF substrates necessary for automotive semiconductors. This was made worse by a fire at Japanese manufacturer Nittobo’s plant in July 2020. In response, Volkswagen, Ford, and Toyota, among others, cut, and in some cases completely halted their production in some factories, at a time when the automotive sector was booming.

In October, another fire broke out at the Asahi Kasei Microdevices (AKM) plant in Japan. This severely damaged the production plant and put it out of operation, forcing the company to work with a third-party manufacturer until the AKM plant’s operations could be restored. This caused problems in the market which caused prices to shoot up in the days following the fire as customers stockpiled supplies to safeguard their own supply chains.

2021: Natural disasters strike

After an incredibly difficult 2020, industries were hopeful that 2021 might offer a reprieve as countries began to recover from the COVID-19 pandemic and the automotive industry began to rebound. However, shortages continued to get worse with more demand growth, an ongoing shortage of raw materials, and unforeseeable catastrophic events. In Q1, the end-customer supply for key components was very tight. The shortage had caused a fall in growth and manufacturers were left fighting over scarce resources.

These problems were exacerbated by an earthquake in February which hit the Renesas Naka factory in Japan. This caused a blackout that suspended production. While the repercussions of this were relatively small, the factory was dealt a second blow when a fire broke out in March. This impacted a building where two-thirds of the company’s wafers for automobiles were produced, causing yet more problems for automakers.

Meanwhile in Texas, widespread power outages caused by storm Uri led to rolling blackouts. Manufacturers like Samsung, Infineon, and NXP Semiconductor were all forced to suspend their plant operations. To add to all the chaos, a drought in Taiwan, the country’s worst dry spell in half a century further threw chip production into disarray. This is because wafer fabrication requires large quantities of water for the production process.

Looking to the future

While it’s true that some of the big chipmakers are being proactive—Intel plans to spend more than $20 billion building new semiconductor factories in the U.S. and TSMC says that it will spend $12 billion on a new factory in Arizona—it’s going to be a few years yet before these plans come to fruition and they do nothing to quell the short- to medium-term problems causing the shortage. In the long-term, however, these and other projects in the pipeline should do a lot to meet future demand.

In May, Gartner analysts said they expect the worldwide semiconductor shortage to last until Q2 2022 at the earliest. By the end of the year, it’s hoped that the industry will start to balance out with more capacity. In the meantime, however, all that can be done to address the shortage is end-customers adjusting their production schedules to account for the disruption.

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