Semiconductor Shortage Might Cost the Auto Industry $110 Billion

The hits keep on coming for the automotive industry. While the semiconductor chip shortage started last year during COVID-19 complications, the issues have not yet been cleared up. Ford estimates losing between $1 billion and $2.5 billion this year alone.

Why is there a chip shortage?

A semiconductor chip
The global semiconductor chip shortage is expected to cost the industry more than anticipated | Chris Ratcliffe/Bloomberg via Getty Images

CNBC reported that the semiconductor chip shortage could potentially cost the automotive industry $110 billion in revenue for this year alone. In early 2021, CNBC reported that AlixPartners estimated a loss of $60.6 billion due to the shortage. That has since increased 81.5% to $110 billion.

“The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas and a drought in Taiwan.”

Mark Wakefield | AlixPartners

Wakefield explained that now that these issues have been brought to light, the next step is to fix the supply-chain problems. A fire at the Renesas warehouse caused a major hiccup recently, while weather-related issues plagued the U.S. earlier in the year.

AlixPartners is predicting just under four million vehicles will be impacted this year due to the chip shortage. Initially, that number was at 2.2 million but has since increased.

Some automakers have switched to sourcing semiconductor chips from smaller manufacturers. Though these companies might have had less of an advantage at first, it seems some more chip-focused companies might have an advantage.

How long will the chip shortage last?

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This part is fairly unpredictable. The U.S. is currently reviewing supply chains for industries like semiconductors, batteries, medical supplies, and rare earth metals, CNBC says.

The White House plans to review gaps in domestic manufacturing and supply chains that are dominated by or run through “nations that are or are likely to become unfriendly or unstable.”

While it does not directly mention China, the ongoing issues with Chinese exports are likely a large part of the situation. By reviewing the current supply chain issues, these conditions can hopefully be fixed and avoided down the line.

Experts predicted these semiconductor problems could last up to two years, but the problems have already been around for a year or so. While the government seeks to learn more to avoid such global problems in the future, there is still a lot to be learned and improved upon.

More losses for Ford and GM

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The issues are not specific to one piece of the supply chain. All of the ways through, companies are out of money. The large factories and suppliers are out of revenue, just like the smaller companies. However, it is more likely the big companies will be able to weather the storm and rebound.

GM anticipates losing about $1.5 billion to $2 billion, while Ford anticipates $1 billion to $2.5 billion. Nissan and Honda expect to sell about $250,000 fewer cars.

And while the automotive industry is being hit hard, many other industries are feeling the chip squeeze. The chips are important for things like power steering and brakes, but the newer cars rely on these chips for a lot more than just that.

Dan Hearsch of AlixPartners notes that one car can have up to 1,400 chips in a typical 2021 vehicle. Hopefully, in the second part of the year, production can continue to ramp up.