A pandemic side effect: Car makers are last in line in the microchip shortage

Microchip demand has skyrocketed with the use of the internet and digital devices during the pandemic. The automobile industry then struggles to get its supply.

technology in cars — Credits Bicanski, Pixnio

Cars are now concentrates of digital technology, from parking cameras to driver-assistance or entertainment systems. And this makes them dependent on few components like microchips, or semiconductors, to work. Problem: the tech industry also massively uses them in computers, smartphones, TVs or video consoles. And at the moment, electronic chips are sold like hot cakes.

The automobile industry forced to slow down the production

This difficulty impacts the whole automobile manufacturing process. In fact, a delay can disrupt the entire sophisticated but fragile production chain.

As a consequence, General Motors announced it would stop 3 of their production plants. Ford will pause making the F-150 pick-up, the best selling car in the U.S. and the company’s most lucrative product. Volkswagen already anticipates to make 100,000 fewer cars in the first quarter, or roughly 1% of its annual production, due to the shortage.

The entire industry is vulnerable to this small but crucial component that is necessary for other industries.

Cars are not the chip producers’ priority

The issue for car makers is that other companies like Apple, Microsoft or Sony are much better clients to the chip producers. And the rise of remote work, social distancing, curfews or leisure restrictions increased the demand for digital devices and services. Samsung, the world largest memory chipmaker, is more focused on supplying semiconductors to their own smartphones than cars.

The scarcity of semiconductors is going to hold the car industry back for a good part of 2021. In effect, lead production times take about 5 months now instead of a few weeks, and production is at its maximum speed.

On one hand, the automobile industry didn’t anticipate such a fast rebound in car sales either. And chip factories are now outpaced by the global demand.

This is the case for Nvidia, a company that make graphic cards for video games or cloud data centers. Both of these sectors are doing extremely well, but self-driving vehicles also use Nvidia chips. So, with video calls, the launches of the PS5 and Microsoft Xbox Series X, or the rise of 5G pressuring the manufacturing capacity, they can’t expect tech giants to let lose on their core businesses. On the contrary: the last months were more of an deal-making frenzy in the sake of consolidating and securing the semiconductor business.

Several large acquisitions in the chip industry

Last September, Arm Holdings, a firm that designs the architecture chips used in most mobile phone, was sold to Nvidia for $40 billion.

In October 2020, the South Korean company SK Hynix, the world 4^th largest chip producer, bought Intel’s memory-chip business for $9 billion.

And in January 2021, Qualcomm, a wireless and mobile tech mastodon but also dependent of Arm Holdings intellectual property, acquired a 2-year-old startup developing central processing chips for data centers for $1.7 billion. In that same month, Cristiano Armon, the former head of Qualcomm’s chip division , was appointed as the new CEO.

So in the end, car makers only seem a peripheral stakeholder in this chip shortage.