Automakers continue to battle with consumer electronics companies for semiconductor supply as a perfect storm of Covid-19, severe weather and geopolitical tensions exacerbates an existing global chip shortage.
In the past few months a slew of car manufacturers have paused production, unable to get the chips they need. Honda said it will shutter factories across the US and Canada, while Volkswagen said it was unable to build 100,000 cars because of chip shortages.
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“In 2021, we will suffer from it,” Volkswagen CEO Herbert Diess told CNN on Tuesday. “Not over the entire [vehicle] lineup, but some models might be constrained.”
Modern cars are full of chips – 50 to 150 is common, often many more than a car owner has in his or her other devices – which has meant all automobile manufacturers have been affected by the ongoing shortages in some way.
Last month General Motors was forced to temporarily close three of its North America factories while Ford said its first-quarter production would take a 10% to 20% hit.
The pandemic has been one of the driving factors behind shrinking chip supply. Initially, the foundries making the physical chips were forced to halt production to stop the virus’ spread, squeezing supply chains for devices including Apple’s iPhones and creating a global orders backlog.
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By GlobalDataMeanwhile, car makers were forced to cancel orders from chip manufacturers due to slumping car sales.
This contrasted with soaring demand for consumer electronics devices as people turned to tech during stay-at-home restrictions. It also coincided with releases of the latest generation of PlayStation and Xbox consoles, which need new and powerful silicon. Enterprises have also been competing for supply as the pandemic forced them to accelerate digital transformation projects that rely on additional hardware such as data centres or laptops for remote workers.
Chipmakers therefore shifted their unused automobile production capacity to these high demand sectors. But as demand for cars crept up again at the tail end of 2020 carmakers sought new supplies, creating a tug of war between the automobile and consumer electronics sectors.
To make matters worse, severe weather has caused some semiconductor plants to close.
Samsung Electronics, for example, has a semiconductor foundry based in Austin, Texas. Last month this was forced to close due to power shortages caused by severe storms in the US – putting further pressure on supply.
Yesterday Samsung co-chief executive and mobile chief, Koh Dong-jin said there was a “serious imbalance” in the semiconductor industry that would hurt its business and might lead to it skipping the launch of its next Galaxy Note smartphone this year.
The supply problems have been especially troublesome in China. The People’s Republic is the largest technology manufacturer globally, turning out every kind of finished tech product, it depends on imports for the bulk of the chips it puts inside them. Leading chipmaking nations include the US, Japan, South Korea and Taiwan.
Zhou Zixue, a senior official with the China Semiconductor Industry Association, said on Wednesday that the world is going through an unprecedented chip shortage.
“If you are an experienced player, you will remember that in 1999 there was a similar crisis in this industry, but it was way smaller,” he said in remarks at SEMICON China. “We have to deepen our cooperation, we have to give more attention to innovation. Only by doing that our industry can control the challenges facing us.”
Semiconductor shortage: why it matters
Covid-related chip disruptions have come against a background or trade tensions between the US and China, the most visible result of which has been the West’s ostracization of Chinese networking giant Huawei.
The dispute demonstrated the fragile nature of semiconductor supply chains after US sanctions cut off Huawei’s access to US-made and US-designed microchips.
Sino-US tensions have continued to escalate – even without the abrasive diplomacy-by-tweet strategy employed by former US President Donald Trump.
This week the Federal Communications Commission moved to eject two Chinese telcos from the US market, citing the two companies’ close ties with President Xi Jinping’s regime. The move suggests that the two world superpowers are set to continue clashing in key technology areas. It is often said that data is the new oil. But without semiconductors, that data cannot be put to use, as if oil had to remain in barrels rather than powering energy sources.
For car manufacturers, the costs are already mounting up. Ford said if the shortage continued affecting production into the second quarter it could end up costing the company between $1bn and $2.25bn this year.
Naturally, carmakers are not happy with the turn of events and this has already resulted in finger-pointing. An unnamed Volkswagen executive told Reuters:
“This has caused a lot of trouble. If the supplier didn’t have a chip problem in its own supply chain, we would get our control units.”
This could foreshadow legal disputes as companies wrangle over who is responsible for the shortages affecting their bottom lines. In February, Volkswagen blamed its chip suppliers for not giving warning of the shortage in time. Volkswagen’s chief has since said the German firm would look to do business directly with semiconductor makers. If others were to follow suit, it could end up reshaping the setup of the semiconductor ecosystem.
All this comes at a time when countries are still reeling from the economic devastation of the pandemic. It could also have a knock-on impact on automaker jobs. Factories sitting idle mean manufacturers will be less inclined to make new hires and if chip supply fails to pick up some may be forced to make redundancies to protect already battered bottom lines.
Does anyone win out the global shortage? In theory, it could be good news for chipmakers. Demand outpacing supply makes their products more valuable, which tends to raise the price of goods. These costs could then be passed onto other businesses and consumers.
Read more: Semiconductor supply shortage is just the start for squeezed automakers
