The pandemic has created countless issues worldwide. One is the ongoing semiconductor chip shortage, which has hamstrung many industries, including the automotive sector. Car manufacturers have had to scramble to hit production targets and satisfy demand from the car shopping public. Over the past year, the problem has frustrated many producers and consumers, but a potential endpoint is on the horizon, though some stumbling blocks still lie ahead.
Why is there a chip shortage?
Many businesses ground to a halt in March 2020, and in the nearly two years since the pandemic began, they have yet to steady themselves enough to keep up with the constant demands of capitalism.
As COVID-19 spread around the world and most businesses sent workers home temporarily, auto plants shut down and orders from chip suppliers ceased. Meanwhile, the electronics industry went into overdrive as people stuck at home bought more video games consoles, computers, TV sets, and other electronics requiring these small silicon devices. (Shout out to everyone who’s been trying in vain to get a PlayStation 5.)
After the vaccine rollout began and factories were ready to resume production, the auto industry ran into a problem. Chip suppliers could get bigger contracts from other buyers and weren’t willing to give carmakers a deal. After all, the auto industry accounts for only 5% of chip consumption, and the older “legacy” chips used in many cars have such a low profit margin that chipmakers have no incentive to prioritize these parts. So car companies are forced to wait at the end of the line, increasing their need to maximize the value of the vehicles they can make without an abundance of semiconductors.
These circumstances are made even more difficult by the inevitable coronavirus outbreaks and variants that further affect production and the need for people to buy a new car in the first place. If you’re staying at home more often and money is tight enough as it is, what’s the need for a new car?
Consumers shopping for a new ride see the price hikes passed to them. According to Kelley Blue Book, the average price of a new car increased 13% in the past year.
Semiconductor chips should be more readily available in 2023
The chip situation appears to be getting better, but there is still a chance a backslide could occur and make things worse in the meantime.
Chip suppliers committed $146 billion to production (more than 30% over 2020), and several corporations are making moves to end the shortage as quickly as possible, MotorTrend reports. Taiwan Semiconductor Manufacturing Company, Samsung, and Intel announced plans to build new chip plants in the next few years.
There may also be some government help on the way. Last June, a bill was introduced to increase research, development, and chip production in the United States (it has yet to earn enough votes in the House). And the Senate approved $52 million in funding to boost the semiconductor industry, although only $2 billion is earmarked for legacy chips.
But these solutions will still take time to make inroads into the problem. Plants take years to enter full production, and the chip shortage could become endemic. Researchers at KPMG believe it will take until October 2023 before vehicle supply is ready to meet projected demand. Cox Automotive economists say the car market might not reach pre-pandemic levels before 2025.
After losing more than $200 billion in revenue in 2021, the auto industry is desperate for an upswing. But the hope is that chipmakers and the companies that need chips will be better prepared to deal with problems as they arise.
Why are these components so important?
Semiconductor chips play a foundational role in the inner workings of many electronic devices, so the increasing use of technology in cars makes them more important as time passes.
Nearly every recent innovation in automotive technology involves the use of these chips. Semiconductors make it possible for electronic vehicles to lower carbon emissions and increase efficiency. They also power Infotainment features and enable mobile hotspots.
Most important, semiconductors are a boon for car safety. Advanced features such as blind-spot detection, 360-degree cameras, lane-keep systems, adaptive cruise control, and automatic emergency braking use semiconductors to function.
As the chip shortage continues, some car manufacturers have had to adjust their cars’ designs due to a lack of resources. For instance, General Motors and Stellantis have removed convenience items from their vehicles for the time being. However, Toyota’s networking advantages have helped the Japanese automaker ride out the shortage without making substantial changes. Even for the carmakers unaffected by the shortage, it’s better for everyone if the chips become more readily available as soon as possible.