An Auto Supply Crisis: When Will the Car Chip Shortage End?

When will the car chip shortage end?

Are you planning to buy a new car this year? Have you been dreaming about owning a new vehicle for some time now?

Well, you’ll have to wait a bit longer.

Car dealers across the country face empty barren lots. Consumers are also feeling the brunt, as they are facing restricted new car choices.  A massive shortage of semiconductor chips – a vital electronic component in modern new cars is the culprit.

In worse cases, this shortage is making consumers buy used cars. As this dire situation continues, most are wondering, when will the car chip shortage end?

What’s the Concern About?

A semiconductor chip/microchip is a microscopic component made from silicon, a plentiful mineral on the earth’s surface.

While tiny, these chips are complex and contain numerous transistors essential in completing electric circuits allowing machines to function. Manufacturing the chips is complicated and demands adequate time, resources, specialized equipment, dust-free rooms, and extensive spaces.

The average modern new car has more than 1400 chips for different parts. From the engine, touchscreens, auto emergency braking (AEB), airbag deployment, to name a few. For instance, the chip boosts the engine’s fuel efficiency and power by up to 35 horsepower or more.

Now you see why you’ll have to wait longer before getting your dream car.

Why is there a Car Chip Shortage?

The car chip shortage isn’t an event that happens overnight or due to a single factor. The shortage occurred due to a cocktail of reasons, including:

1. Covid-19

The global pandemic forced vehicle manufacturers, dealers, and distributors to shut down operations. The restrictions and lockdowns meant that driving won’t be a popular activity any longer.

On the other hand, as vehicle owners stayed home, the demand for electronic devices rose considerably. Microchips are also used in devices such as computers, networking equipment, cameras, to name a few. With the limited fresh supply of chips, device makers used and depleted their inventories.

2. Poor Weather

Samsung and NXP Semiconductors had to close down after a severe weather storm hit Austin, Texas in February 2021, limiting chip supply. On the other side of the world, Taiwan- a major semiconductor supplier – was experiencing a record-breaking drought in 2021. The drought limited the use of ultra-pure water in chip processing causing a production strain to Taiwan Semiconductor Manufacturing Company Limited (TSMC).

3. Fires

Multiple fires have caused various plants to cease operation contributing to the shortage. Asahi Kasei, a Japanese manufacturer, experienced a fire in October 2020, Renesas Electronics, also Japanese, experienced a fire in March 2021, and Berlin’s ASML caught fire in January 2022.

4. Economic Conflicts: US – China Trade Wars

In 2020 (Q4), the US department of commerce forced restrictions on Semiconductor Manufacturing International Corporation (SMIC), China’s largest chip manufacturer.

These restrictions added pressure on other players such as Samsung and Taiwan Semiconductor Manufacturing Company (TSMC), which were already at maximum production and couldn’t stretch more.

The Impact of the Shortage

An event of this magnitude has created an impact felt across the globe. And it’s not just in the automobile industry. According to Goldman Sachs, the global shortage affected up to 160 industries ranging from automobiles, computers, medical gadgets, among other electronic devices.

While numerous factors caused the chip shortage, the global pandemic lit the fuse. The restrictions and lockdowns reduced demand for vehicles, but the need for chips for computers and other related equipment rose. Manufacturers used up their stockpiles, leaving none for the auto industry.

The carmakers, dealers, and customers had to wait in line for the chips that might not come sooner. The results are an increased cost of new cars to the current average price of $47,077, an all-time high. Toyota had to impose a 40% global production cut. BMW resolved to discount $500 to customers who bought select vehicles without the touchscreen capability.

Then vaccines became available, economies began to recover, customer demand for new vehicles shot through the roof. While AlixPartners predicted the auto industry would experience a $210 billion shortfall in revenue, the global semiconductor chip revenue in 2021 broke the $500 billion record for the first time to $583.5 billion, according to Gartner.

Response from Stakeholders

Now the economies are gaining traction, car dealerships and customers want their new cars. However, the chip shortage is still fresh.

So, how are the players responding?

In January 2021, the US Congress passed the Creative Helpful Inventions to Produce Semiconductors (CHIPS) for America Act. The act injected $52 billion to incentivize the manufacturer and supply of semiconductor chips in the US through:

  • Financial assistance to construct, expand and modernize semiconductor fabrication plants (fab) in the US
  • Federal grants not exceeding $43 million to private businesses and public institutions for new and rejuvenating existing fab and training
  • Instituting a Multilateral Semiconductor Security Fund to fund semiconductor research and development.

The EU Chips Act that’ll enable the allocation of €11 billion in funds into semiconductor R&D, design, and manufacturing. The act also aims at mobilizing up to €43 billion of public and private investments until 2030.

South Korea plans to invest $450 billion to become a global semiconductor leader with the help of corporations such as Samsung, SK Hynix, among others. The government plans to create the ‘K-Chip belt’ connecting multiple metro areas to foster the semiconductor industry.

Other governments, such as China and India have also beefed up plans to expand their semiconductor chip manufacturing capabilities.

Additionally, corporations have plans underway to boost their semiconductor production. Samsung and SK Hynix are joining other 151 companies to inject $151 billion and $230 billion in the ‘K-Chip belt’ respectively. Intel is contributing €80 billion to the EU Chips Act, TSMC will invest $100 billion over the next three years to revamp production in the US, and Bosch has pledged more than $700 million towards the same.

When Will the Car Chip Shortage Be Over?

When will the car chip shortage end? There are conflicting reports among industry experts and stakeholders.

In a Bloomberg report, the Biden-Harris administration hinted the chip shortage will continue for at least the first six months of 2022.

AMD CEO Dr. Lisa Su hinted on Yahoo Finance Live that the shortage will persist in Q1 and Q2 of 2022, but Q3 and Q4 will experience some much-needed relief.

However, Jia Shaoqian, the president of Hisense, one of the largest Chinese electronics manufacturers hinted in a CNBC interview the chip shortage might persist for the next two or three years.

Governments and other stakeholders are installing measures and mechanisms to mitigate the semiconductor chip shortage. While the crisis won’t be over in the next few months of 2022, one thing is certain, you might have your new car soon. 

AutoSwiftly is with you every step of the way. We have the best interest of our customers at heart. 

Recommended reading: Every Electric Car That Qualifies For The US Federal Tax Credit

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