IHS: Automotive chip shortage will continue
Latest update time：2021-09-27 20:13
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Source: Content from
The Wall Street Journal, author: Yergin, Vice Chairman of IHS Markit
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A chip famine is starving the global auto industry and putting car buyers on a strict diet.
So far this year, 7 million vehicles that were supposed to be produced have not been built, according to IHS Markit. Auto companies are shutting down production lines for weeks at a time and furloughing employees because of chip shortages. Toyota has already cut production by 40% in September.
All of this is hitting consumers. Car dealerships are scarce across the U.S. New car inventory in the U.S. is only about 30% of pre-pandemic levels, and used cars are being snapped up as soon as they are found. The shortages don't stop there. Rental companies reduced their inventories during the pandemic, and now there aren't enough cars to meet demand. So if you're renting, it's going to cost you more than you expected -- if at all.
The chip shortage won’t be resolved anytime soon. IHS Markit’s automotive team calculated that semiconductor supply won’t catch up with industry demand until late 2022, and shortages of some advanced-function chips could last until 2023.
New cars are increasingly computers on wheels, often requiring more than 1,000 computer chips for basic functions like raising and lowering windows or adjusting the air conditioning as well as complex features like digital displays and adaptive cruise control. For the most part, cars don’t need advanced and expensive chips like those used in the latest smartphones. Instead, they use mass-produced microcontrollers. But over the past decade, fewer and fewer companies have been making these chips.
While the automotive industry accounts for only 10% of semiconductor demand, it has borne the brunt of the supply crunch. In the summer of 2019, IHS Markit noted that the automotive industry’s reliance on a shrinking supply base to produce semiconductors was risky. The pandemic has turned that risk into a severe shortage. Starting in 2020, automakers have had to compete for chips with electronics manufacturers producing goods for constrained consumers, as well as growing demand for 5G mobile networks.
The Covid-19 outbreak has also led to factory closures and supply chain disruptions. Factories that play a key role in making chips for Asian manufacturers stopped working in August as Malaysia imposed a pandemic lockdown. A drought in Taiwan disrupted water-intensive chip production; a fire at a semiconductor plant in Japan further limited supply; and a winter storm hit semiconductor plants in Texas. As automakers and suppliers work to replenish inventories, some companies are reportedly paying a premium to secure chips.
Semiconductor manufacturers have recently prioritized the automotive industry, with the largest supplier, TSMC, promising 20% to 30% growth in chips. This renewed focus is welcome, but it does not address the structural imbalance in semiconductor supply and demand.
The obvious answer to the chip shortage is to increase manufacturing capacity. But that's expensive and takes time. Semiconductor companies may not want to invest in traditional chip technology when future demand may come from high-value chips for applications such as artificial intelligence. Although the chip industry has announced nearly $400 billion in new investments as the chip shortage unfolds, only a small portion of that investment will go to address the chip shortage that is plaguing automakers.
The shortage has raised national security concerns among companies and governments, given Asia’s dominance of the semiconductor industry. Government initiatives in the United States and Europe have begun to revive some manufacturing. But those efforts focus on advanced chip technology and are not expected to solve the auto industry’s woes.
An adequate supply of chips will become even more important to the future of the automotive industry. Electric and autonomous vehicles require both cutting-edge and traditional chip technologies, and an electric vehicle powertrain contains three times as many semiconductors as a traditional internal combustion engine and transmission. IHS Markit estimates that the average vehicle currently contains about $450 worth of semiconductors, and we expect that number to double by 2030.
The auto industry needs solutions. In the short term, some automakers are considering abandoning their just-in-time purchasing models in favor of giving chip suppliers more certainty about future demand. Some are prioritizing vehicles with higher profit margins. One company is reverting to mechanical dials instead of digital displays on some cheaper models so that those chips can be used in more expensive models. Automakers and semiconductor companies are also forming strategic partnerships.
Here's some advice for consumers: You may have to wait until next year to buy your dream car as supply chains straighten out. If you want a new car now, try to find an available model that fits your needs, or if you spot a used car you want in one of those barren lands, grab it. If you're thinking of selling your car, those car dealers with inventory will be eager to meet you.
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