Global Car Chip Shortage – General Discussion

What is this automotive chip shortage?

A chip shortage, also known as a semiconductor shortage or global automotive chip shortage, occurs when demand for silicon chips exceeds supply.

Or to put it simply:

If there are not enough semiconductor materials available to meet market demands, then a “chip shortage” occurs.

As vehicles and trucks become more digital, the automotive sector is losing billions of dollars due to the global shortage of semiconductors in automotive chips. Here’s why it happens and what you can do about it.

What happened with the shortage of semiconductor chips and how and when will the automotive industry come out of it?

The shortage of semiconductor chips that has plagued the auto industry for months is finally starting to ease. The good news is that it’s not going away anytime soon, but the unfortunate thing is that it will take longer to regain its position in the industry.

The auto industry desperately needs chips. But unfortunately the assembly lines have come to a halt due to the semiconductor crisis that occurred in the first half of last year – extended delivery time for small silicon chips, hampering the manufacture of everything from mobile phones to driver assistance systems for home appliances.
As a result, major automakers, including one based in the United States, have already announced major production cuts, resulting in billions of dollars in projected revenue for 2021.

How did it happen?

A single disturbance did not cause the shortage. Instead, a series of factors have conspired to bring the auto industry to its current predicament.

Struggles during COVID 19:

During the first half of 2020, the automotive industry experienced a significant drop in demand. In addition, while new vehicle sales increased in the second half, automakers did not significantly increase their semiconductor orders due to a very ambiguous sales outlook.

Simultaneously, consumer demand for personal computers, servers, and wired communications equipment has increased dramatically due to the shift to remote working and the increased need for connectivity, all of which are heavily reliant on semiconductors.

As a result, while the automotive industry has significantly reduced its chip orders, other industries have seen demand increase.

Main causes of the shortage?

Due to geopolitical tensions, some consumer electronics manufacturers have significantly increased their chip inventories to weather a period of limited access to semiconductor manufacturing. We estimate that such storage has increased demand for wireless semiconductors by 5-10%, which is equivalent to a third of all chip sales in the automotive market.

Additionally, just-in-time manufacturing practices are widely used in the automotive supply chain to reduce waste and increase efficiency by keeping inventory on hand low.
Reducing inventory is financially beneficial in standard time; however, in the event of an unexpected shortage, the practice causes immediate disruption to the entire supply chain. Because many players weren’t expecting a token shortage in 2020 or 2021, they most likely only had a tiny amount of stock on hand to weather the storm.

Recovery Strategies

There are no clear signs that the imbalance of market forces in semiconductors will soon be corrected. Typical semiconductor lead times can exceed four months for products that are already well established in a manufacturing line. It is common to add six months to the capacity of a product by moving it to a different manufacturing site (even in existing factories).
Trying to switch to a new manufacturer (eg, changing manufacturing plants) typically adds a year or more, as the chip design must be changed to accommodate the new manufacturing partner’s specific production methods. Additionally, the chips may contain manufacturer-specific intellectual property that requires modification or licensing.

According to the analysis, chip capacity for the automotive industry will soon be insufficient to meet demand. This is primarily due to the continued increase in the volume and sophistication of chips needed to power future technologies such as enhanced driver assistance systems and self-driving cars.

The most successful companies have implemented various strategies to deal with the current situation. Many companies have set up dedicated war rooms that combine supply and demand intelligence to increase transparency.
Auto-generated dashboards, for example, combine data from multiple sources on a wide range of topics, such as a company’s supply chain and a semiconductor player’s commitments.

Using analytics to match supply and demand reduces the need for time-consuming and error-prone manual work. The aim is to provide accurate information for internal and external communication, for example with suppliers and customers. Companies generally view this as a no-regrets decision.

Edited by hamluis, Today, 03:24.

Moved from Ext Hdware to Gen Chat – Hamluis.

Shirlene J. Manley