Everything you need to know about the chip shortage that’s troubling automakers
Here’s everything you need to know about automakers’ chip shortage. These chips are slightly larger than a quarter-sized coin, but they are causing a halt to vehicle production across the country. The car dealers cannot sell new vehicles, so consumers have limited choices and must wait for their vehicles to be built. Tens of thousands more vehicles are parked in, waiting for semiconductor chips to be added before being shipped out to dealers.
Here are the basics of semiconductor chips:
What are these chips, you ask?
The tiny transistors that make up the chips are made of Silicon, found in many minerals on the Earth’s surface. These chips allow computers, smartphones, and appliances to function. Chips are also used by vehicles.
According to BBC reports, Silicon feeds a $500 Billion chip industry, with the chips forming the backbone of a global tech economy worth $3 trillion. Many of the raw materials used in the semiconductor industry come from Japan and Mexico. The chips are made in Taiwan, China, and some in the U.S.
What’s the problem with chip supply?
The COVID-19 pandemic caused a shortage of chips. This increased demand for personal electronics like cell phones and laptops meant that production could not meet the demand.
What is the reason for the chip shortage?
In March 2020, the global pandemic forced automakers, suppliers, and dealerships to shut down. As a result, the economy entered a recession.
Michelle Krebs, an executive analyst at Autotrader, stated that automakers who had been in recessions before quickly canceled orders for computer chips parts, believing that sales would plummet. However, although sales of new cars fell initially, they quickly recovered with increased demand and 0% financing. Dealers also discovered how to sell cars online by offering pickup and delivery at home. So when the factories restarted, there was a massive demand for new vehicles which outnumbered supply.
Krebs stated that “automakers and suppliers who use chips contacted their chipmakers to place their orders, and they returned their orders.” By then, other businesses had used chip capacity, such as phones, computers, and video games, while people were working at home and learning.
Joe McCabe, CEO of AutoForecast Solutions LLC, stated that global chip production is being monopolized in Asia-Pacific by a handful of suppliers.
“All of the lights went out simultaneously,” McCabe stated that this meant there was no way to create an inventory of products or solutions until businesses could turn their lights back on. This created a significant bottleneck for all manufacturing processes.
What is causing my vehicle to be delayed due to chips?
Many automakers have shut down factories and stopped producing certain vehicles to get the chips they need to make more profitable and in-demand vehicles like pickups and SUVs. GM Motor Co. and Ford Motor Co. also build the vehicles without chips and then park them in the garage to wait for the part. After the chips arrive, these vehicles go through the final assembly before being shipped to dealers. However, this delay can take up to weeks.
Krebs stated that the supply of new vehicles has been at an all-time low. Slowing sales are slowing down the used supply. Krebs noted that these trends would likely continue in the coming weeks, as nothing can change the current situation.
What are the various uses of chips in vehicles?
The chips are used in many electronic systems by cars. Depending on the complexity of the component, a car could have 500 to 1,500 chips.
How long can the chip shortage continue?
In April, Cisco CEO Chuck Robbins stated to the BBC that he believes six more months are left in the short term. This is because providers are expanding their capacity. This will continue for the next 12-18 months.
What are automakers doing to adjust or not to adjust?
Automakers have cut production of cars like pickups and SUVs in the short term to make more money. They are also building cars and parking them until chips are available.
Or they may be building vehicles without certain features — Tesla has removed the passenger side lumbar support; GM eliminated fuel-saving features such as automatic start-stop, fuel management module, and fuel management module. Automakers are looking at their supply chains long-term.
Chipmakers are working to increase production. Some are even committing to building additional capacity in the U.S. The Biden administration has created a task force to examine the supply chain of chips. In addition, the U.S. Senate voted 68 to 32 in favor of legislation that will fight against overseas competition, particularly a growing threat by China. It also includes investing more than $50 million into the production of semiconductors. As they work to increase North American production, automakers, suppliers, and government officials will be looking into EVs and the origins of batteries.
The chip shortage is affecting automakers and their suppliers. Some companies are getting creative to keep up with production demands while others are struggling. So what can you do if this becomes a problem for your company? We hope these tips give some clarity on how to deal with the current situation. If not, let us know! Our team of experts at Vyrian would be happy to help you think through your strategy so that no matter what happens in the world of chips, we have your back.