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The global chip shortage hits car companies hard, manufacturers look for ways to work around the bottleneck

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Carmakers have been hit hard by the worldwide automotive chip shortage, with manufacturers having to temporarily pause and delay new vehicle production. Several car companies have had to close their plants due and reassess their 2021 production targets due to the shortage.    

The Semiconductor Industry Association stated the automotive chip shortage is largely due to the result of  swings in demand and increased use of chips in advanced vehicles  (the average car includes 50 to 150 chips), and mentioned that the shortage actually began in the second quarter of 2020. Chip manufacturers are already running at capacity to produce components for smartphones, personal gadgets and data centers, with car semiconductors ranking lower in priority. 

The demand for chips — or semiconductors — has soared during the pandemic as people buy game consoles, laptops, tablets and TVs to adjust to extended stay-at-home orders. Demand for personal computers  grew by 10% in 2020  and surged by 25% in Q4. Chipmakers favor supplying consumer electronics companies because the volume of their orders exceeds that of orders placed by automakers; the annual  smartphone market alone consists of more than 1 billion devices. Smartphones also require more than one chip, with 5G connectivity requiring 40% more semiconductors than older 4G devices. Automaking is also considered a lower-margin business, with manufacturers preferring to not bid on chip prices. 

General Motors announced plans to  shut down three plants and slow production at a fourth  due to the shortage, mentioning that the chip shortage could lead to the company missing its 2021 targets. Volkswagen also said it will make  100,000 fewer cars in Q1  due to the shortage, with Nissan, Subaru and Honda also cutting production. Ford also  temporarily shut down a plant  in January 2021 after  closing an SUV plant in Kentucky, predicting it would reopen in three months. Toyota predicted it would sell  one million fewer vehicles  over the course of 2021. 

Most manufacturers think the chip shortage will continue to impact car production into the summer, but they remain optimistic. GM is finding ways to work around the shortage by  building vehicles without certain chips and storing them  to add the parts once they arrive. Toyota also mentioned that it has remained in  constant communication with suppliers to develop its own production plan. Hyundai and BMW have noted that they  secured semiconductor inventory  and will not be affected in the near future.  Taiwan-based Semiconductor Manufacturing Company also recently announced that its chipmakers will prioritize supplies for automakers. 

Ford  found a different way to steer away from manufacturing brand new vehicles by looking to the used car market. The manufacturer  partnered with Cox Automotive’s Autotrader  and launched  Ford Blue Advantage, a digital marketplace that allows its dealers to list and sell used vehicles on a single platform. Cars certified under this new program come with 24/7 roadside assistance and FordPass reward points. 

On a temporary basis, almost every business dependent on semiconductors is being affected by the shortage. Automakers expect a trickle-down effect of the reduction in car manufacturing, especially in the  electric vehicle market  as chips are critically important to features such as assisted driving, large displays and interconnectivity capabilities.

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