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Categories: New Car News

Chip Shortage and Semiconductors are Affecting Auto Sales and the Industry’s Future

This infamous chip shortage has become a thorn in the auto industry’s side and won’t be getting removed anytime soon. The COVID-19 pandemic has changed the world by touching different aspects of life, business, and overall society . Unfortunately, the automotive industry and auto sales weren’t immune to the symptoms caused by this pandemic.  The chip shortage, which more specifically is a shortage revolving around a semiconductor, is affecting production of new vehicles and auto sales. Now, manufacturers and dealers are having to adapt and prepare for what has become a long-term issue.

 

New vehicle prices have been rising, mechanics have been going on strike, vehicle parts are becoming more expensive, factories are shutting down for weeks and even months, manufacturers are canceling work-shifts, billions of dollars in revenue are slipping away, but at least the sky isn’t falling…just yet. Like most of us, the automotive industry is hurting. This seemingly short-term semiconductor problem has now become a long-term issue. It will likely take years for production and auto sales to fully respond, but the automotive industry is responding.

 

 

What caused the global Chip shortage and semiconductor inventory issues?

Well, there’s plenty to share the blame. When the COVID-19 pandemic first became a reality, most people thought this was would be over shortly. Then, back to normal. Back to the days of clearing your throat in public without getting the stink-eye or eating without needing a mask. Looking back, it seems a little naïve. Naturally for manufacturers, their initial reaction was to pump the brakes, especially on the orders of chips and semiconductors. That reactive decision-making has had a massive ripple effect throughout automotive supply chains. Not to mention, the excessive and outdated use of chips and semiconductors by automotive companies anyway. This usage of chips and semiconductors has been pushing the industry towards a shortage anyway.

Think about how many sensors and monitors and other electronical technology is used in cars today. There’s a lot of semiconductors and other tech to be installed, just so vehicles are drivable. The technology in vehicles keeps progressing as the computers become more advanced, with new safety features, entertainment options, and more. But the electrical work, specifically automotive semiconductors, has become outdated when compared to other industries. Vehicles have been made and are still being made that use outdated chip and semiconductor technology. A great example, the average Ford Focus needs around 300 chips and new EVs (electric vehicles) need around 3,000 chips. The automotive industry has simply fallen behind on chip and semiconductor technology, helping cause this chip shortage. The growing material shortages are obviously no help either, as this infamous chip shortage plagues the industry.

A lot of automotive manufacturers correctly predicted the decline of auto sales. They also started to slow down and even completely halt orders of chips to make their new vehicles. The inconsistency with chip and semiconductor orders has also contributed to the unstable supply chain that the automotive industry is currently suffering from, but the automotive manufacturers aren’t the only ones who need chips for their products. There’s plenty of other industries also trying to get a healthy and consistent flow of chip-inventory for their own products.

 

 

The chip shortage: why are a semiconductor and automotive chips so hard to get?

The competition and demand for microchip-related technology and materials is an issue plaguing the automotive industry right now, so it hasn’t gone unnoticed. Jim Farley, Chief Executive of the Ford Motor Company recently said in an interview, “Ultimately, if we don’t make feature-rich chips that only the auto industry uses, all of our jobs are at risk.” So, what started out as a short-term issue has steadily become a major problem and now the automotive industry is being forced to adapt.

When the pandemic first hit, automotive-chip supplies were considered low priority as auto sales started to decline and sales of home devices, along with other popular products using a semiconductor or chips, started to rise. With more people staying home and auto sales falling, the reality of how outdated automotive chips and semiconductors are has become unmistakably clear.

For microchip suppliers, they can send more of their product to other industries and potentially make more profit depending on the price and size of the chips or shipments needed. However, for automotive manufacturers needing chips and semiconductors, they require much more material to supply their outdated needs. The lack of chips has consequently resulted in factories shutting down for weeks and even months, which obviously factors into the lack of inventory for newer model vehicles. However, the chip shortage is not entirely to blame for the disruption to so many supply chains.

Because of the way the auto industry uses chips and semiconductors in vehicles a shortage was bound to happen anyway, but this pandemic is not completely over yet. Despite the advancements made with vaccines and their supplies, some countries are still more affected than others by the ongoing COVID-19 pandemic. Some countries, like Malaysia where a number of Volkswagen suppliers are based, are still being heavily affected by COVID-19 and are also home to factories that produce the chips and semiconductors. The supply of these semiconductors are affected by efforts to fight the spread of the virus. A factory in Japan made headlines after it was damaged because of fire and automotive supply chains took yet another hit. This Japanese factory was estimated to affect roughly 30% of the world’s microcontroller units production used in cars. Luckily, there were no fatalities due to the fire, but production was heavily affected.

 

 

Other factors into the Auto Industry’s future and auto sales?

Overcoming COVID-19 and fixing overly-strained supply chains aren’t the only hurdles that the automotive industry is going to have to jump. Earlier in 2021, the European Union passed new laws to force automotive makers to create much cleaner and safer vehicles by 2030. Following the European Union, President Biden heavily incentivized American automotive makers to manufacture and sell more electric vehicles, while also proposing investments into EV infrastructure. The disruptions to the automotive industry’s supply chain have been frustratingly consistent and the regulations proposed by governments aim to help with environmental issues, so the industry is adapting and responding for the future.

The automotive industry has plenty to rebound from, between the already strained supply chains, the pandemic stressed supply chains, and new government regulations, but luckily most manufacturers have already been working on the development of electric vehicles for years. Ford is making waves in the industry by announcing the company is investing $11.4 billion in a new electric vehicle and the production of electric battery plants. Ford is estimated to be creating around 11,000 jobs in the two states hosting to the factories and this big investment.

 

Chip shortage and semiconductor production, when will the automotive chip shortage end?

The global pandemic brought on by COVID-19 has debatably accelerated the trends of the automotive industry. Automotive companies could use Tesla as an example for the future. Tesla is a company seeing massive growth in a time where most automotive companies and dealers are struggling. Even recently Tesla impresses, with news of a deal involving Hertz car rental company and thousands of Tesla EVs. This news pushed Elon Musk’s company to the $1 trillion market cap for the first time in company history.

The automotive chip and semiconductor shortage has also impacted Tesla . Tesla has faired better when compared to their competition, but all automotive manufacturers are being affected. A big reason Tesla has been doing so well during the semiconductor shortage is due to the factory in China. Along with an incredibly strong supply chain for their vehicle production. Tesla has a limited number of locations to build their vehicles and batteries. Knowing this, the China location has become incredibly productive and even more valuable to the company.

Thanks to the location of one of Tesla’s factories, Shanghai, they have much more inventory. More inventory means better meeting consumer demands. The demand of electric cars for sale has been steadily growing, especially in China, the United States, and throughout Europe. Now, the auto industry is seemingly being pushed to evolve even faster than expected. Tesla has been growing in demand and auto sales, but their strong supply chain helped carry them through this pandemic. This success could potentially help launch them ahead of their competition in the future.

What was once unwanted change has seemingly become necessity. Automotive manufacturers are having to focus more on eco-friendly auto sales and creating more reliable global supply chains. Companies are also working to improve how they uses semiconductors and other microchip-related technology in production.

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By: Tyler Drag

This post was published on October 29, 2021

Tyler Drag

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