2022.10.
29
THE EFFECT OF CHIP SHORTAGE
ON THE GLOBAL CAR INDUSTRY
DURING THE EARLIEST DAYS OF THE COVID-19 CRISIS, AUTOMOTIVE
HEADLINES FOCUSED ON THE HUGE DROP IN VEHICLE DEMAND. BUT
FOR MORE THAN A YEAR NOW, CONCERNS HAVE SHIFTED TO THE
SUPPLY SIDE. ALTHOUGH VEHICLE ORDERS HAVE SURGED TO
UNEXPECTED HEIGHTS, A SHORTAGE OF AUTOMOTIVE
SEMICONDUCTORS IS FORCING OEMS 1 TO CLOSE PRODUCTION LINES
OR REMOVE SOME POPULAR FEATURES, SUCH AS HEATED SEATS,
FROM THEIR OFFERINGS.
IT HIGHLIGHTS THE FRAGILITY OF THOSE SUPPLY CHAINS, WHICH LARGELY
RELY ON ASIA AS A HUB OF SEMICONDUCTOR MANUFACTURING. THE EFFECTS
OF THE SEMICONDUCTOR SHORTAGE HAVE EXTENDED BEYOND THE AUTO
SECTOR, WITH OTHER INDUSTRIAL PLAYERS STRUGGLING TO SECURE CHIPS.
CAUSES OF THE CHIP SHORTAGE
No single incident or disruption caused the semiconductor shortage. instead, a
confluence of events contributed to the situation the auto industry now faces.
PREVIOUSLY IN 2020-2021
The auto industry faced a substantial drop in demand. the highly ambiguous
sales outlook at the time meant that automakers didn’t meaningfully increase
their semiconductor orders. at the same time, driven by the shift to remote
work and the associated greater need for connectivity, consumer demand
significantly rose for personal computers, servers, and equipment for wired
communications, all of which heavily depend on semiconductors. that meant
that even as the auto industry drastically cut chip orders, other sectors faced
an increased need.
PRESENT CAUSES IN 2022
Russia’s invasion of ukraine has introduced further uncertainties to both the
semiconductor supply chain and automotive demand. For instance, ukraine
supplies 25 to 35 percent of the world’s purified neon gas, and russia supplies 25
to 30 percent of palladium, a rare metal used for semiconductors.
Many semiconductors are transported by air, but transport costs have
significantly increased while available shipping volume has dropped.
Oems have been unable to obtain critical vehicle components, such as wiring
harnesses, and have reduced their production volumes in response, which has
added even more uncertainty by decreasing demand for some semiconductor-
based components.
SOLUTIONS
1
OEM stands for “original equipment manufacturer.” Though some in the automotive industry have taken to
referring to car companies themselves as OEMs, the term relates to any company that manufactures parts
for use in new vehicles — or to the parts themselves.
There isn’t any indication that it will resolve short-term, that’s because
semiconductor production can exceed four months for the products that are alreasy
well established in a manufacturing line, increasing capacity by moving a product to
another manufacturing site also adds another six months. Switching to a different
manufacturer takes a year or more because chip’s design requires alterations to
match specific manufacturing processes of the new manufacturing partner.
Chip capacity probably won’t catch up with demand in the short term for the
auto industry. That is primarily because of the continued increases in volume
and sophistication levels of the chips needed to power new technologies, such
as advanced driver-assistance systems and autonomous driving.
In the long-term, the auto industry will need to retink the way it structures contracts
for semiconductor-related sourcing. In addition companies might have to reconsider
the current practice of just in time delivery and low stock levels along their value
chains. Since many government leaders are concerned about the fragility of supply
chains and the prospects of depending on single suppliers and distant countries for
vital needs , companies are pushed to towards regional sourcing.
Many oems and automotive tier 1 suppliers have already established control rooms
that combine staff from procurement, supply chain management, and sales to help
ensure that they have a sufficient supply of semiconductors. While these teams have
developed some effective solutions to manage the immediate supply–demand
shortage, they often lack the required tools, skills, or capacity to manage it over the
midterm and develop strategic solutions.
SOURCES
