Automakers are experiencing a shortage in semiconductors due to the demand for parts from consumer electronics manufacturers. Numerous automakers are already feeling the effects of the shortage as production plants have begun shutting down worldwide.
Car companies initially began cutting down orders for semiconductor parts in light of the COVID-19 pandemic as they braced for an anticipated drop in sales. This has forced semiconductor suppliers to divert production to meet the sudden rise in orders for home appliances, gaming systems, personal computers, and smartphones as more consumers spend money on indoor entertainment. Similarly, work-from-home arrangements have increased the need for improved digital and telecommunications infrastructure, resulting in an even greater demand for semiconductors as businesses upgrade their IT systems.
However, while car sales managed to recover and pick up toward the tail end of 2020, it may still take six to nine months to optimize production and accommodate the demand from all industries, according to semiconductor suppliers.
Toyota Motors has already closed its production lines in China, while production has slowed down at the company’s pickup factory in San Antonio, Tex. Fiat Chrysler has temporarily halted production at its Ontario and Mexico facilities. Ford Motor’s Louisville facility has paused operations since early January. Meanwhile, Volkswagen reported that its factories in China, Europe, and the U.S. have already begun experiencing production issues.
This shortage is expected to continue throughout 2021. However, auto companies have assured that this will not affect current auto prices, though it will take some time for units to roll out. Volkswagen, Ford, Fiat Chrysler, Toyota, and Nissan have already announced that they will be delaying the production of certain models to keep the rest of their facilities operational.
The latest car models use over a hundred semiconductor parts for features such as touchscreen infotainment systems, computerized controls, and advanced safety technologies. Industry analysts have shared that the shortage poses a challenging problem for auto manufacturers, as the absence of even one component can result in production delays. Scott Vazin, the spokesman for Toyota, shared that the company will be “evaluating the supply constraint of semiconductors and developing countermeasures to minimize the impact to production.”
Subsequently, semiconductor suppliers are also experiencing issues in controlling production costs in tandem with the need to scale production. While some companies such as Infineon, NXP Semiconductors, and Renesas outsource their advanced chips through foundries, most auto chips are still made in-house through traditional eight-inch silicon wafers instead of the larger 12-inch versions.
Should the shortage persist, car inventories could potentially be reduced even further—which could affect the auto industry’s recovery. Chipmakers argue that car companies have backed themselves into a corner by deciding to lower inventories. However, auto companies are saying that chipmakers are giving priority to consumer electronics, since it now constitutes a majority of their profits.
Semiconductor suppliers such as Bosch and GlobalFoundries have denied this, saying that they have been working on prioritizing their production lines for auto companies. Michael Hogan, the senior vice president at GlobalFoundries, shared that a chip can now take between 20 to 25 weeks to pass through the supply chain before it can be shipped to auto manufacturers.
Continental, a German supplier of tires and electronic components, recently said in a statement that investment in foundries is now critical to prevent similar supply chain issues in the future.
For more news and stories, check out how graphene could reduce the cost of semiconductor wafers here.