Struggling to buy a new car or shocked by the prices? The car chip shortage has been disrupting the auto market and might be the reason. This article breaks down the shortage—its causes, impact, and what to expect—as we uncover what this means for drivers and the industry.
Key Takeaways
- The global car chip shortage, exacerbated by COVID-19, geopolitical tensions, and supply chain disruptions, has had significant impacts on production, deliveries, and pricing in the automotive industry.
- Automotive companies are responding to the crisis by strengthening semiconductor supply chains through increased production capacity, diversifying suppliers, and forming strategic partnerships, while governments offer incentives for domestic production.
- Despite industry adaptations like shifting focus to mature process node capacity and integrating more consumer electronics within vehicles, the chip shortage is expected to persist until at least 2023, with the risk of extending into 2024.
The Automotive Industry’s Struggle: A Snapshot of the Car Chip Shortage
Unprecedented ways have been found in which the car chip shortage has impacted the automotive industry. It started as a minor hiccup and has now evolved into a global crisis, leading to notable disruptions in production, deliveries, and pricing. Various factors, such as manufacturing slowdowns, shipping delays, and material scarcity, have exacerbated the situation.
Making a significant hit, the implications of this shortage on global automobile sales are far-reaching.
Explaining the Semiconductor Crisis in Autos
A confluence of factors can be identified as the source of this crisis, including the impacts of the COVID-19 pandemic. This global health crisis triggered disruptions in supply chains and manufacturing capacity, leading to an increase in demand for semiconductors. The supply chain disruptions were further aggravated by natural disasters, shipping delays, port closures, and orders cancellation by car manufacturers.
The crisis has also seen a significant influence from geopolitical trade risks. For instance, export restrictions imposed by mainland China have affected the availability of wafer and packaging capacity, crucial components in the production of semiconductors.
Automotive Semiconductor Demand vs. Supply Chain Realities
A complex web is formed by the semiconductor supply chain that starts with chip manufacturers and ends with consumers. The consumer electronics industry, a major end consumer of semiconductor chips, has contributed to the increased consumer demand for chips in the realm of semiconductor manufacturing.
Despite the surge in demand, the supply chain was unable to keep pace. Production cuts, delayed shipments, and increased prices have become the new norm. The gravity of the situation is evident in the estimate that nearly 18 million units will have been removed from production plans globally by the end of 2023 due to the severity of the shortage.
Impact on Global Auto Sales
Global auto sales have experienced a substantial effect from the chip shortage. The impact includes:
- A 26% decrease in global light vehicle production in the first nine months of 2021
- An estimated financial loss of over $200 billion for the industry
- Production cuts by car manufacturers around the world
- Shipment delays
- Factory shutdowns
- Prioritization of high-demand models
These challenges have significantly disrupted the auto industry.
Certain regions have faced more significant challenges, particularly due to supplementary supply limitations and crises such as the Russia-Ukraine situation. These have further complicated the supply chain, leading to supply chain issues.
Navigating Through Supply Chain Turbulence
The automotive industry is actively responding, despite the turbulent times. It is employing measures such as:
- Identifying semiconductor demand based on production schedules
- Improving supply chain resiliency
- Creating joint ventures with semiconductor manufacturers and vendors.
It is also addressing geopolitical trade risks, implementing new sourcing models, strengthening bonds between OEMs, and managing potential disruptions in chip supply.
Strengthening the Semiconductor Supply Chain
Strengthening the semiconductor supply chain emerges as a key strategy to navigate the semiconductor supply chain challenges during this crisis. Some ways to strengthen the supply chain include:
- Increasing production capacity to address shortages
- Diversifying suppliers to reduce reliance on a single source
- Streamlining operations to improve efficiency
- Increasing procurement of semiconductors from domestic sources to fortify the supply chain
These measures can help mitigate the impact of semiconductor shortages and ensure a more stable supply chain.
Automotive companies are also forming strategic partnerships and exploring new sourcing models to enhance the supply chain. Governments too are playing their part. They’re offering:
- Tax breaks
- Subsidies
- Regulatory backing for domestic manufacturing
- Fostering collaboration between semiconductor manufacturers and automotive companies.
Geopolitical Trade Risks Remain
Further complications to the situation have arisen from the US-China trade war. It has led to repercussions on:
- Supply chains
- Market performance
- Financial performance
- The global competitiveness of the automotive industry.
Nationalistic tendencies also pose a significant challenge. They can disrupt global auto trade and require cars to be tailored more specifically to national preferences. Thus, the automotive industry needs to navigate these geopolitical trade risks to ensure a smooth supply of chips.
When Will the Roads Clear? Predicting the End of the Chip Shortage
The million-dollar question is, when will the roads clear? It’s a complex task to predict the end of the chip shortage, given the many variables at play. Factors such as the COVID-19 pandemic, trade wars, and supply chain disruptions can disrupt production momentum.
Experts anticipate that the automotive chip shortage is likely to persist until 2023 and possibly into 2024.
Factors Influencing the Chip Supply Situation
The chip supply situation is influenced by several factors, including:
- Economic variables
- The pandemic
- Supply chain challenges
- Increasing demand
These factors can lead to limited inventory, extended order wait times, and rising prices.
Political factors such as reliance on complex global sourcing and dependence on foreign suppliers have made the supply chain more vulnerable to disruptions and bottlenecks. Natural disasters also pose a significant threat as they can cause damage to manufacturing facilities and lead to the cessation of operations.
Production Momentum Disruption
Production momentum can be disrupted by external factors like changes in demand, interest rates, and inflation. As these factors fluctuate, they pose a significant challenge to maintaining a steady production pace in the automotive industry.
Elevated interest rates may result in a deceleration of growth in the automotive industry, thereby directly influencing consumer purchasing power and demand. Inflation disrupts the momentum of car production by causing:
- an increase in vehicle prices
- higher production costs
- higher raw material costs
- higher labor costs
Innovations and Adaptations: The Auto Industry’s Growth Trajectory
The auto industry has responded to the chip shortage with innovation and adaptation. It’s focusing on mature process node capacity and incorporating more consumer electronics within vehicles, signaling a new growth trajectory for the industry.
Shifting Focus to Mature Process Node Capacity
Older manufacturing processes are required by mature process nodes, typically characterized at 40nm and above. Automotive manufacturers are utilizing chips at mature nodes, such as:
- 90 nm
- 130 nm
- 180 nm
- 250 nm
- 300 nm
These mature nodes are used in automobiles and other critical products to meet specific requirements.
This shift to mature process node capacity is optimizing production by meeting the specific demand needed for automobiles and other critical products. However, it’s not without challenges. The time and investment required to build new fabrication plants (fabs) that can adequately meet the demand for these specific types of semiconductor nodes could pose significant hurdles.
The Rise of Consumer Electronics within Vehicles
Another trend reshaping the automotive landscape is the integration of consumer electronics within vehicles. Some examples of these technologies include:
- Advanced driver assistance systems (ADAS)
- Infotainment systems
- Connectivity features
- Smart sensors
These technologies are becoming increasingly common in modern vehicles, enhancing driving experiences.
This focus on consumer electronics is driving the demand for semiconductors. It’s projected that electronics will account for approximately 50 percent of a new car’s cost by 2030, driving continued growth in the demand for automotive semiconductors. From Peugeot to Mercedes-Benz, many car manufacturers are integrating consumer electronics extensively.
The Long Road to Recovery: Global Mobility Analysis
Although long, the road to recovery for the automotive industry comes with hope. The industry is navigating supply chain challenges, adapting to market changes, and closely analyzing global mobility trends.
The future of mobility is being reshaped by the emergence of electrified vehicles (EVs), the growth of ride-hailing and ride-sharing services, and the incorporation of autonomous driving technology.
Summary
The car chip shortage has had a profound impact on the automotive industry. It has disrupted production, shaken up supply chains, and affected global auto sales. But the industry is not standing still. It’s innovating and adapting, focusing on mature process node capacity, and incorporating more consumer electronics within vehicles. The road to recovery is long, but with resilience and innovation, the industry is poised to navigate this crisis and emerge stronger.
Frequently Asked Questions
Is there still a chip shortage for cars?
The global chip shortage for cars has mostly subsided by 2023, and the auto industry has largely recovered with global car production up 3%.
Is there still a car shortage 2023?
The car shortage is expected to persist until the end of 2022 or even into 2023. Despite some improvements in production and sales, the industry’s momentum has been significantly set back.
Is the car shortage getting better?
No, the car shortage is expected to persist for the next few years, with limited used inventory and elevated prices, likely lasting until at least 2024.
What caused the semiconductor crisis in the automotive industry?
The semiconductor crisis in the automotive industry was caused by a combination of factors, including disruptions in supply chains and manufacturing capacity due to the COVID-19 pandemic, as well as a surge in demand for semiconductors.
How has the car chip shortage impacted global auto sales?
The car chip shortage has significantly decreased global light vehicle production by 26% in the first nine months of 2021, causing an estimated financial loss of over $200 billion for the industry. This has led to a substantial impact on global auto sales.