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You may have noticed that these days it is difficult to get hold of new, excellent graphics cards and game consoles. This is largely due to the persistent global shortage affecting semiconductor foundries. As it turns out, the problem is even more pronounced in the automotive industry. In fact, it gets so bad that a number of OEMs, including Ford and General Motors, have had to go as far as diaper shifts and even entire factories.
Ford had to stop production in Kentucky in December 2020, and in January he ordered a month-long break at a German factory. Stellantis (the new company formed by a merger between Fiat Chrysler and Peugeot) reduced production in the US, Mexico and Canada around the same time. Like Audi, which had to launder 10,000 employees in Germany, CEO Markus Duesmann told the Financial Times that the problem “contains a very long chain with different delivery levels of the components we need.” Subaru’s Gunma factory in Japan has been affected. The production of Toyota’s Texas-manufactured Tundra is also.
This week there are more hits coming. Mazda has just announced that it may have to reduce production by 34,000 units this year due to a lack of chips. Nissan’s truck factory in Mississippi has reduced its hours. And on Wednesday, GM said it would halt production at factories in Kansas, Canada, Mexico and South Korea. In many cases, the car manufacturers try to prioritize their more popular products, but as some of the closures show, this is not always possible.
Why is this happening?
As you might expect, the problem originated in the coronavirus pandemic. As countries around the world introduced new public health rules, car manufacturers reduced production, and car dealers and showrooms closed to stop the spread of the disease. As sales dried up, OEMs scaled back semiconductor chip orders, dozens of which go into every new car to control just about everything. Similarly, the chip manufacturers scaled down their production of these chips in response to declining demand.
As COVID-19 restrictions eased in some places, demand for new vehicles returned, but automakers had a problem. In the absence of car orders, foundries and factories have switched their ability to fulfill other orders instead. And despite its size, the automotive industry is actually a tiny bit buying chips, producing about one-tenth of global semiconductor production. As a result, the bottleneck is expected to last for months.
Is everyone affected?
The problem did not affect the entire automotive industry equally. Toyota says, for example, that it diversified its supply chain and a larger stock of components after the 2011 earthquake and tsunami in Japan. And Hyundai Motor Group did not cancel any of its chip orders in 2020 due to COVID-19, so it is virtually intact. But the hit for the industry is estimated at $ 61 billion.
Also, do not expect the problem to be confined to the automotive industry. Qualcomm warned on Thursday morning that “the shortfall in the semiconductor industry is widespread.”