Snags has threatened to leave a big dent in the auto industry, which by some estimates led to a $ 60 billion loss in sales during the first half of its year.
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As the US economy exempts from its epidemic, a significant cog is in short supply: computer chips that power a wide range of products that connect, transport, and entertain us in a world dependent on technology.
Since last summer, this shortage is already prevalent in various markets. This has made it difficult to buy enough laptops from schools for students who go to learn from home, delayed the release of popular products like the iPhone 12 and made Scramble crazy to find the latest video game consoles like the PlayStation 5.
But things have been going awry in recent weeks, particularly in the auto industry, where factories are closing because there are not enough chips to manufacture vehicles that are starting to appear like computers on wheels. The problem was recently compounded by a grounded container ship that blocked the Suez Canal for about a week, cutting off chips going from Asia to Europe.
On Thursday, General Motors and Ford said they would cut production at their North American factories as the global shortage of semiconductors continued to grow.
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These snags are likely to disappoint consumers who cannot find the vehicle they want and sometimes find themselves settling for lower-end models without many fancy electronic features. And it threatens to leave a big dent in the auto industry, which by some estimates leads to a $ 60 billion loss in sales during the first half of its year.
“We’re in the grip of the perfect storm, and it’s not going away any time soon,” said Baird technology analyst Ted Mortenson, who said he has been tracking the chip industry in nearly 30 years. Has not seen a serious shortage.
Is there an epidemic to blame?
like. The epidemic prompted chip factories to close early last year, particularly overseas, where most processors are made. By the time they started reopening, there was a backlog of orders to fill them.
It would not have been very difficult if the chipmakers had not been immersed in the swamp due to unforeseen demands. For example, no one entered 2020, expecting to see a surge in personal computer sales after nearly a decade of steady decline. But this happened when millions of office personnel were forced to do their work from homes after the government lockout, while students were mostly remotely present in their classrooms.
What other factors are at work?
Yes. Both Sony and Microsoft were preparing to release the highly anticipated next-generation video game consoles, respectively, for their PlayStation and Xbox brands that needed more sophisticated chips than ever before. To add to the demand, wireless network providers are pushing for ultrafast “5G” services being created worldwide for chips.
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President Donald Trump’s trade war with China probably did not help. Some analysts believe that the Trump administration prompted the blacklisting of Huawei Technologies, the major manufacturer of smartphones to create a large stock of chips as it prepared to crack.
Why is the auto industry being hit so hard?
Stay-at-home orders increased sales of consumer electronics, squeezing auto parts suppliers, who use chips for computers that control gas pedals, transmissions, and touch screens. Chip manufacturers reduce the pressure to reroute factory lines to better serve the consumer-electronics market, which generates more revenue for them than autos.
After an eight-week epidemic-induced shutdown in spring, automakers began reopening factories as they had imagined. But then they were affected by unexpected news: chipmakers were not able to quickly flip a switch and create the type of processor required for cars.
How are automakers dealing with shortages?
They have canceled the shift and temporarily closed factories. Ford, General Motors, Fiat Chrysler (now Stellantis), Volkswagen and Honda think this is the most difficult. Others, most notably Toyota, are not dramatically affected. Bank Securities analyst Vivek Arya said that perhaps because Toyota was prepared after learning that sudden, unexpected shocks, major earthquakes and tsunamis could disrupt the supply chain.
Hard-hit automakers have diverted chips from slow-selling models such as high-demand pickup trucks and large SUVs. Ford, GM and Stellantis have started manufacturing vehicles without some computers, putting them into storage with plans to later withdraw.
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GM expects it to cost up to $ 2 billion in prex profits this year from lost production and sales. Ford is hanging on for a similar setback. Chip makers may not be able to fully capture the auto-industry demand until July.
How will it affect those who want to buy a new car?
Expect to pay more. Even before the chip shortage, supply of many models was tight as automakers were having trouble with epidemic lost production.
IHS Market estimates that chip shortages from January to March reduced North American auto production by about 100,000 vehicles. In January last year, before the epidemic, the US auto industry had enough vehicles to supply 77 days of demand. By February of 2021 it was down by about 30% to 55 days.
Will other popular products be affected this year?
Samsung Electronics, one of the world’s largest chipmakers, recently warned that consumers could be affected by the lack of its vast line of electronics. Without specifying which products could be affected, Samsung co-CEO Koh Dong-jin told shareholders that a “serious imbalance” between supply and demand for chips led to sales losses from April through June Can.
What is happening to prevent this from happening again?
There is no quick fix, but chipmakers are gearing up to meet future challenges.
Intel, which has dominated the market for PC chips for decades, recently made waves by announcing plans to invest $ 20 billion in two new factories in Arizona. Even more important, Intel said it was launching a new division that would enter into contracts to make chips tailored to firms other than its own processors. This is a major departure for Intel, linking it more closely to the popular model by the Taiwan Semiconductor Manufacturing Company or TSMC, which was already building a plant in Arizona.
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Forced by the current shortage, TSMC has also committed to spend $ 100 billion over the next three years to expand its worldwide chip manufacturing capacity. According to TSMC chief executive CC Wei, an investment of about $ 28 billion this year will come to boost production in factories, which have not been able to increase demand since the epidemic began.
And President Joe Biden’s $ 2 trillion plan to improve America’s infrastructure includes an estimated $ 50 billion to help make the country less reliant on chips made overseas. According to the Semiconductor Industry Association, a trade group, the US share of the worldwide chip manufacturing market fell from 37% in 1990 to 12% today.
But chips will not come out of any new factories manufactured as part of the spending of two to three years. And even as existing factories ramp up and expand to meet current demand, some analysts wonder if there may be a glut of processors a year from now.
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