Microchip demand has skyrocketed with the use of the internet and digital devices during the COVID-19 pandemic. The automobile industry then struggles to get its supply.
Cars are now full of digital technology, from parking cameras to driver-assistance or entertainment systems. And this makes them dependent on a 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 three of its production plants. Ford will pause making the F‑150 pick-up, the best-selling car in the United States and the company’s most lucrative product. Volkswagen already anticipates making 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 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’s largest memory chipmaker, is more focused on supplying semiconductors to their own smartphones than cars.
The scarcity of semiconductors will hold the car industry back for much of 2021. In effect, lead production times take about five 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. The global demand now outpaces chip factories’ production.
It is the case for Nvidia, a company that makes 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 loose on their core businesses. On the contrary, the last months were more of a deal-making frenzy for 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 phones, was sold to Nvidia for $40 billion.
In October 2020, the South Korean company SK Hynix, the world 4th 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. That same month, Cristiano Armon, the former head of Qualcomm’s chip division, was appointed as the new CEO.
Ultimately, car makers only seem to be a peripheral stakeholder in this chip shortage.
Read more about news from around the world
Media sources and useful links:
- Carmakers have been hit hard by a global chip shortage — here’s why, CNBC, February 2021, Free access
- Chips Are in Hot Demand—and That’s a Problem, The Wall Street Journal, January 2021, Limited access
- Samsung says auto chip shortage could hit smartphones, Financial Times, January 2021, Limited access
- Intel’s Deal With SK Hynix Shows Limited Space Left for Chip Makers, The Wall Street Journal, October 2020, Limited access
- Chip giant Qualcomm names Amon CEO as 5G era ramps up, Reuters, January 2021, Free access
