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How a shortage of semiconductor is adversely affecting the auto industry

How a shortage of semiconductor is adversely affecting the auto industry

All over the world, auto assembly hubs have slowly become numb, with workers being idle and dealership parking lots almost empty. This sudden downturn of events results from a shortage of semiconductors, which has upended making vehicles. They are the small yet vital chips that help calibrate car fuel injection and are the brains behind cruise control. 

In February, a Vehicle plant was shut down in Kansas due to a shortage, and since then, it hasn’t reopened. The auto manufacturing company Mercedes Benz began hiding their chips for more high-end modems and has shut down factories that produce cheaper sedans temporarily. 

Porsche issued a warning to United States dealers that customers are likely to wait for about 12 weeks before they can get their cars, and that is because they don’t have chips used in monitoring tire pressure. Peugeot, the French automaker, has taken the extra step of substituting old-fashioned speedometers for digital units in some of their car models. 

This disruption came at the worst timing because the demand for cars has just improved after the strong effect of the pandemic, as customers are swift to invest their money saved over the year and prefer road trips than using airplanes. Semiconductor supply is preventing carmakers from getting back sales after their losses. 

Automakers like Renault have started sorting their chips, keeping them for use in costlier car models that will yield more significant profit. Some buyers may have the luxury of going home with a new car, but it may not have features for specialized chips. Porsche, another carmaker, has told dealers in the U.S. that it may be unable to deliver on high-cost seats for its Macan S.U.V. in the next couple of months. The car is adjustable in 18 different ways and is a famous upgrade. But the virtual chips are not available. 

One reason automakers can’t get enough chips is that manufacturers of semiconductors have made smartphones, game consoles, and video manufacturers a priority. They view the manufacturers of consumer electronics as profitable customers. A modern car can cone with up to 3,000 chips, but vehicles make up only a tiny part of chip demand. 

One of the few producers of various chips essential for auto manufacturing is Taiwan Semiconductor Manufacturing Company, or TSMC for short. However, carmakers yielded only 3 percent of sales for the company in 2020, according to the German consulting firm Roland Berger. TSMC is a big name in the chip-making industry, and they prioritize smartphone makers because they make up to half of their sales. 

Smartphones are more in number than cars, and the margin between the two is enormous. Before the disruption of global economies in 2019 by the pandemic, car factories produced 93 million vehicles, unlike smartphone manufacture, which range at 1.4 billion units. 

Generally, chip storage and difficulties in the supply chain shortened the production of cars by 1.3 million vehicles in the first three months after the pandemic. This challenge has raised concerns of political leaders in the United States Capitol Washington and other capitals. 

The German Minister for Economy appealed to their Taiwan counterparts, the semiconductor manufacturing global center, requesting that the Taiwanese minister help release a few chips needed urgently by car manufacturers in Germany. The shortage has become a significant problem for manufacturers, especially auto manufacturers. This turmoil has brought out the dependence of the vehicle industry on few suppliers and exposed the vulnerability of this process to the crisis. Managers of the supply chain were shocked when a fire gutted the production factory of Renesas Electronics in Hitachinaka in Tokyo, Japan. The Renesas company is a major chip supplier for brake functioning manufacture, trigger airbags, amongst others. 

The weather has also contributed to playing a role in this decline. At the beginning of the year, the Texas storms forced the shutdown of about three factories manufacturing semiconductors temporarily. Taiwan, on the other hand, is in the middle of a terrible drought, and I.H.S. Markit analysts issued this warning in a report released recently. Chip manufacturing needs pure water in large amounts, and if this is not available, production becomes lesser. Despite the disruptions in the supply chain and the pandemic, the auto industry has plunged into severe turmoil. Sales in the United States have become flat since the early 2000s, and profit margins are slim. At the same time, some big manufacturers can’t keep up with the move to electric cars. 

The White House summit on-chip shortage has suggested allocating $50 billion for infrastructure funds to reverse a decline in chip manufacturing in and around America. However, manufacturers can’t build chip factories swiftly enough to resolve this shortage immediately. Unless there’s a subsidy by the government, makers of semiconductors and suppliers may likely build new factories in or around Chins, the most prominent car market, compared to Europe and the United States growing steadily. With the uncertainty as to when the famine of chips will last, chipmakers hope for government subsidies. 

Meanwhile, automakers have begun improvising to maximize damage. The Mercedes units are triaging their chips to its most expensive models, such as the E.Q.S. sedan, which the company unveiled as is worth about $100,000. 

The Alliance for automotive innovation (A.A.I.) has urged the government to help the expansion of the capacity of the semiconductors manufacturing industry by funding it. There are expectations that car manufacturers will make up for missed production in 2021, while the remaining percentage may be moved to 2022 as there are still demands for new vehicles.

Reference Links:
https://www.nytimes .com/2021/04/23/business/auto-semiconductors-general-motors-mercedes.html

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