Car chips, or “car chip” as it’s often referred to, are at the core of today’s vehicle functionality, and with the current shortage, they’ve become a hot topic. From engine performance to advanced safety features, these essential components are in short supply, leading to production delays and a reshaped automotive landscape. Our comprehensive guide explains the vital functions of car chip, the far-reaching impact of the shortage, and when we might expect a resolution.
Key Takeaways
- Modern vehicles use 1,000 to 3,000 semiconductor chips, which are essential for safety, performance, comfort, and sustainability; a global chip shortage has disrupted this, impacting the entire automotive ecosystem from production to consumer-level.
- Automakers are responding to the chip shortage by simplifying vehicle models, reducing non-essential features, and adapting supply chains, while ongoing investments aim to increase semiconductor production capacity and diversify sources to mitigate future impacts.
- The chip shortage has led to record-high vehicle prices and altered consumer market behavior, with car buyers needing to adjust expectations around available features, model options, and overall car availability.
Understanding the Car Chip Phenomenon
The car chip phenomenon is a clear indicator of our digital era. Modern vehicles can contain anywhere from 1,000 to 3,000 semiconductor chips, contributing to enhanced vehicle:
- Safety
- Performance
- Comfort
- Environmental friendliness
As vehicles become increasingly technologically advanced, these tiny powerhouses play a pivotal role, holding the keys to a vehicle’s core functionalities and innovative features, including the ability to optimize engine performance.
The ongoing global chip shortage has underscored the importance of semiconductor chips, demonstrating their critical role in our everyday lives and the extensive impact of their scarcity on the automotive industry. The implications of the chip shortage extend beyond production lines and factory floors, affecting every aspect of the automotive ecosystem, including:
- Car manufacturers
- Suppliers
- Dealerships
- Auto repair shops
- Consumers
The Evolution of Car Chips
The evolution of car chips has been transformative. In the early days, automotive compute systems utilized purpose-built controls with dedicated processors managing specific functions. However, as vehicles became more technologically advanced, the number of microchips, including computer chips, used increased significantly. Today, our cars are nothing short of data centers on wheels, with multi-function zone controllers communicating over high-speed networks.
This shift towards a zonal concept in car digital architecture has been driven by the need for systems to be durable, efficient, and scalable across different vehicle models and requirements. Going forward, we expect the digital transformation of the vehicle chassis to persist, with semiconductor chips playing an instrumental role in this digital transformation.
Functions of Semiconductor Chips in Cars
Semiconductor chips in vehicles essentially function as the central processing unit, enabling precise control over engine functions such as analyzing sensor data, controlling fuel injection, ignition timing, and managing emissions to ensure optimal performance and efficiency. These engine control units also play a significant role in advancing safety in modern vehicles through the semiconductor chips play, which operates crucial systems like anti-lock braking, stability control, adaptive cruise control, and lane departure warning to enhance driving safety.
Comfort and convenience are also heightened by semiconductor chips, which manage systems ranging from climate control and seat adjustment to sophisticated infotainment systems with GPS and smartphone connectivity. Moreover, improved visibility and driver conveniences are provided by semiconductor chips that power adaptive lighting, automate high-beam control, and assist in power steering, thereby easing the driving experience.
The Global Chip Shortage: Impact on the Auto Industry
The global chip shortage has significantly impacted the auto industry, with chip manufacturers struggling to meet the demand of automakers, including:
- Honda
- General Motors
- Ford
- Toyota
have encountered significant challenges, leading to continuous production cuts with an estimated 2-3 million units expected to be cut from production as of 2023. This disruption has led to significant financial losses and adjustments in vehicle offerings.
While struggling with the chip shortage, the auto industry is implementing cost adjustments to mitigate the chip scarcity. For example, General Motors temporarily put a hold on the seat heat function in some vehicles. The company plans to add the feature back once the chips are available for retrofitting. Meanwhile, car manufacturers like Mercedes-Benz, General Motors, and BMW have adjusted their vehicle offerings due to the chip shortage. Some of the features that have been removed or scaled back include:
- Premium audio
- Wireless charging
- Assisted-driving features
- Heated seats
Causes of the Chip Shortage
The chip shortage didn’t emerge suddenly. It’s a culmination of numerous factors, including:
- Manufacturing delays
- Logistics difficulties in China due to COVID-19 lockdowns
- Geopolitical factors
- The Russian invasion of Ukraine, which has limited the supply of raw materials like neon gas, essential for semiconductor manufacturing
All of these factors have contributed to the chip shortage.
At the advent of the COVID-19 pandemic, auto OEMs reduced semiconductor orders fearing excess inventory, leading to a subsequent loss of priority in semiconductor production lines. This, coupled with conflicts and regulations that have played a role in the chip crisis, has created a complex and challenging environment for the global semiconductor supply chain.
Coping Strategies for Automakers
Confronted with the auto chip shortage, automakers have been forced to adapt and innovate. Strategies have ranged from developing chips in-house to better meet specific requirements and easing development times, to producing vehicles with reduced complexity by removing non-essential features that depend on microprocessors.
Companies like Mercedes-Benz and General Motors have stripped out luxury electronics such as premium audio, wireless charging, and advanced driving features to manage limited chip supplies. Manufacturers have also improved their supply chain agility by adapting vehicle software quickly to compatible available chips and streamlining electronics.
Furthermore, car manufacturers offer reimbursements or the promise of future retrofits for vehicles sold without certain features, aiming to maintain customer satisfaction during the chip shortage.
The Future of Semiconductor Chips in Cars
Looking ahead, the path of semiconductor chips in vehicles is evident. The rapid progression of integrating semiconductor chips in vehicles primarily stems from advancements in electric, hybrid, and autonomous vehicle technologies. This evolution has led to the emergence of ‘software-defined vehicles,’ which allow for continuous improvement and personalization of cars post-purchase, through over-the-air software updates and firmware upgrades.
With the increasing number of electronic components in today’s vehicles and the amplified production of electric vehicles, a surge in demand for automotive microprocessors is noted. As we move forward, it’s clear that semiconductor chips will continue to play a pivotal role in the automotive industry, driving innovation and advancement.
Electric Vehicles and the Demand for Chips
With the automotive industry leaning towards electrification, the semiconductor industry is witnessing a surge in demand for semiconductor chips. Electric vehicles use twice as many chips as gasoline-powered cars due to the complexity of their systems. This, combined with the fact that 13% of all vehicles sold by the end of 2022 were electric, has driven the need for more advanced semiconductors. As a result, many people are asking, “how many semiconductor chips are required to meet this growing demand?”
In electric and hybrid vehicles, chips manage battery systems, motor control, and power distribution, thus enhancing energy efficiency. As the evolution towards electrification and autonomous driving in the automotive industry continues, more sophisticated power electronics and chip processing capabilities will be required.
Autonomous Driving and Advanced Features
Looking forward, autonomous driving is set to play a significant role in the future. The increasingly tech-focused nature of vehicles, especially developments in autonomous driving, has led to a significant rise in semiconductor chip dependency. Higher levels of vehicle autonomy, such as ‘eyes-off’ level 3 operation, require increasingly complex semiconductors, correlating with the number and type of semiconductors used.
Advanced Driver-Assistance Systems (ADAS) necessitate high-performance chips capable of instant data processing to safely manage dynamic traffic conditions. By 2030, it is anticipated that the following will see rapid growth in the autonomous vehicles chip market:
- High-performance computation chips
- Sensors
- Electronic control units (ECUs)
- Domain control units (DCUs)
ECUs and DCUs chips are expected to constitute a larger share of autonomous vehicles chip revenues than sensors.
Solutions and Predictions: When Will the Chip Crisis End?
When will the chip crisis end? While it’s challenging to provide an exact timeframe, industry insiders speculate that the chip crisis may abate by the end of 2023, influenced by adjusting demand and increased auto production. However, geopolitical events such as the Russian invasion of Ukraine could potentially ease the chip supply shortages.
While there have been low fab utilization rates and slowed capital expenditures in 2023, a significant industry turnaround is anticipated, building momentum for recovery in 2024. The semiconductor manufacturing industry is projected to see a recovery beginning in Q4 2023 with growth expected into 2024.
Increasing Production Capacity
Increasing production capacity is one strategy to mitigate the chip shortage. Investments by companies such as Bosch and Wolfspeed, as well as overall global industry investments, are anticipated to substantially increase semiconductor production capacity in 2023. However, filling backorders from previous years and meeting current demand is no small feat. To tackle this challenge, semiconductor manufacturers are investing in new manufacturing processes and raw materials like cobalt, palladium, and copper.
In addition to industry efforts, government initiatives are also being launched to bolster manufacturing projects. The CHIPS for America Act, for example, potentially allocating up to $52 billion towards funding new chip production efforts.
Diversifying Supply Chains
Another strategy to mitigate the impact of the chip shortage is diversifying supply chains. Diversified supply chains demonstrate greater resilience and can recover faster from disruptions by having an enhanced ability to substitute between different inputs. Manufacturers are adopting multi-sourcing strategies and increasing buffer inventory, exemplified by some automotive OEMs increasing their semiconductor inventory levels to create a more robust buffer against supply chain shocks.
Enhanced collaboration across supply chains and investment in redundancy are also part of the solution to supply chain issues. The public sector is contributing to supply chain resilience by fostering international cooperation and enacting legislation to buffer economic shocks. The diversification of supply chains has led to an expansion in manufacturing facilities, especially in critical industries that were previously over-reliant on concentrated foreign suppliers.
The Ripple Effect: How the Chip Shortage Affects Consumers
The chip shortage not only affects car manufacturers but also directly impacts consumers. The average new car price reached a record high of $48,681 in November 2022 due to the chip shortage. Additionally, many companies have an imbalance of inventory, leaving them with a surplus or missing parts needed for production.
As a result of the chip shortage, some new vehicles are being sold without certain features installed, requiring buyers to return to dealerships for installations later. This means that as a consumer, you may have to adjust your expectations and consider what’s currently available in the market.
Vehicle Pricing and Availability
The chip shortage has notably affected vehicle pricing and availability. From December 2020 to December 2021, the average new car price surged from $41,335 to $47,077. However, the average new car cost began to stabilize in early 2022, only to increase again towards the end of the year.
On the other hand, used car costs showed a different trend. After a notable increase in 2021, used car prices started to show a decline by the end of 2022. Despite the fluctuating prices and limited availability, consumers continue to adapt and navigate the market as best as they can.
Adjusting Expectations: Car Features and Options
The chip shortage has compelled automakers to take several measures to adjust their production and conserve chip use. These measures include:
- Reducing the production of specific models, particularly those requiring a larger number of chips
- Simplifying vehicle models by removing non-essential features
- Prioritizing chip allocation for essential functions and operations
Consumers may need to adjust their expectations regarding available features and options in vehicles due to these changes.
As a result of reduced feature availability, consumers are now more likely to consider models and options they may not have preferred before the shortage. The scarcity of certain car features due to the chip crisis necessitates buyers to adjust their expectations and consider the current market limitations while purchasing a new car.
Summary
As we’ve journeyed through the intricacies of the global chip shortage and its ripple effects, we’ve uncovered how integral semiconductor chips are to the functioning of modern vehicles. Whether it’s enhancing safety and performance or enabling the rise of electric and autonomous vehicles, these tiny powerhouses play a pivotal role. The chip shortage has thrown a spotlight on the challenges and opportunities in the automotive industry, nudging manufacturers towards innovation and resilience. As we look to the future, the road ahead is clear – semiconductor chips will continue to drive the high-tech heart of our vehicles, steering us towards a more connected and efficient world.
Frequently Asked Questions
What is a chip for a car?
A car chip, also known as a semiconductor chip or microchip, serves as the brain in modern electronics, controlling the flow of electrons through a series of tiny transistors made of silicon.
Is there still car chip shortage?
Yes, there is still a car chip shortage, but there are signs of improvement in the industry. More than 10.5 million vehicles were cut from production in 2021.
Does chip your car really work?
No, performance chip tuning may enhance certain aspects of your car, but it can also potentially damage the engine and void the warranty, making it a risky investment.
How many semiconductor chips are in a modern vehicle?
A modern vehicle typically contains between 1,000 to 3,000 semiconductor chips, with an average of 1,400 to 1,500 chips.
Why are electric vehicles driving the demand for more semiconductor chips?
The demand for more semiconductor chips is being driven by the increasing production of electric vehicles, which use twice as many chips as gasoline-powered cars due to their complex systems.