There is a global chip shortage. Cars are more expensive, computer makers are struggling to keep up with consumer demand, and many products have been heavily delayed like the PlayStation 5 which is still unorderable a year after its launch. according to Yahoo Finance.
How did this thing start?
Automakers assumed people wouldn’t want to buy cars during the pandemic and slowed production to find the opposite was true. The overwhelming demand has significantly increases the price of used cars. Prices for new vehicles rose around 12% on the year while used car prices jumped more than 42%, according to a white paper released by KPMG just before Christmas.
At the same time, in 2020, the electronics industry faced increased demand for mobile phones, televisions, computers, games and home appliances from customers fulfilling stay-at-home orders. Chipmakers have redirected their supply to the electronics industry, which has also shown a willingness to pay more for silicon chips.
The automotive industry accounts for 5% of the chip industry and when the automotive sector came back online faster than expected in the summer of 2020, it found that the necessary chips were not available and suppliers were content to maintain their more lucrative contracts with others.
Rebuilding capacity, but shortages persist
In November, Japan pledged $5.2 billion to provide support to semiconductor makers in a bid to help solve the global chip shortage.
Intel, Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung are currently investing in new factories, but it will take at least another 2 years to get them up and running.
Experts believe the shortage will continue through 2022 and 2023. Intel CEO Pat Gelsinger said he expects the situation to continue through 2023. supply chains, which caused it to turn negative. Demand exploded 20% year over year and disrupted supply chains created a very big gap and that explosion in demand persisted,” he told Nikkei.
Jensen Huang, CEO of NVIDIA, an American technology company that designs graphics processing units, echoed this sentiment in a recent Yahoo Finance interview, saying he doesn’t think there are any “silver bullets” when it comes to managing the supply chain.
Although a problem that affects virtually everyone, the chip shortage has been particularly painful for gamers. A year after the launch of the PlayStation 5, it’s still nearly impossible to order one. And PC gamers eager to upgrade their GPUs will have to live a little longer with their old video cards. Chipmakers have also been forced to meet the growing demand for PCs, game consoles and a wide assortment of gadgets.
Impact of automotive manufacturing
the the shortage is costing the global auto industry around $210 billion in lost revenue in 2021, according to AlixPartners.
The auto industry’s rebound during the pandemic had been fairly orderly until the chip crisis extended and threatened the expected recovery cycle, says Colin Couchman, executive director of Global Automotive Sales Forecasting at IHS Markit. “The flea crisis was wider and deeper than we thought.”
The world will have lost 11.3 million production units in 2021 due to chip shortages, according to AutoForecast Solutions. The impact could be 7 million additional units in 2022 and 1.6 million in 2023, according to IHS forecasts. Cox Automotive economists do not expect the wholesale car market to reach pre-pandemic and pre-chip crisis levels until at least 2025.
The global chip shortage is expected to send China’s electric vehicle industry in partial frost. There will be a shortfall of at least 1 million electric cars amid the crisis. According to the South China Morning Post, companies can produce enough semiconductor microcontroller units and high-end chips with artificial intelligence (AI) processors for 4 million new energy vehicles (NEVs) in China. in 2022.
The auto industry is taking shortcuts
Necessity forced automakers to get creative. They ran vehicles down the line, skipping some components and parking near-finished vehicles until the missing part and/or features could be added and the vehicle delivered to the dealership. When factory lots were overflowing with partially finished models and dealership lots were emptying out with little inventory available, automakers began sending unfinished vehicles to dealerships to await chips and components.
Another tactic was to ship vehicles without specific features such as wireless charging, lumbar support in the passenger seat, automatic start, or additional key fobs to save chips. And going forward, automakers are working to reduce the number of chips needed in each part.
Global auto sales are expected to reach just under 80 million in 2021 and reach 82.4 million in 2022, to reach 90.1 million in 2023 and 96.4 million in 2024.
Semiconductors are a $450 billion global industry. U.S. capacity accounted for just 12% of global semiconductor chip production in 2020, down from 37% in 1990, according to the Semiconductor Industry Association. China, Taiwan and South Korea are bigger players when it comes to these tiny silicon transistors.