The average amount of time that automakers and other companies need to wait for chip orders reached 21.7 weeks; this wait time has only been increasing for the last nine months. The pandemic triggered global chip shortages that will cost $210 billion in lost sales this year losing 39 million vehicles in the process.
Although the shortage’s severity is hitting automakers unevenly depending on where plants are located, companies across the industry are looking to shift their supply chain for the foreseeable future:
- Hyundai announced earlier this month that it plans to develop its own semiconductor chips in order to reduce reliance on chipmakers. The automaker temporarily shut down some factories earlier this year, but doesn’t want to get caught without a supply again and aims to be more self-reliant in the space.
- Intel announced in September that it would be dedicating its Ireland plant to manufacture chips specifically for automakers to help with the shortage. The plant has been traditionally used for manufacturing computer processors but will convert some output for the automotive industry. The company is also investing $23.5 billion in new factories in Arizona, New Mexico and Oregon.
- Toyota suspended output in 14 plants in Japan in August, slashing its production plan by 40%. The manufacturer stayed stable over the first half of the year due to its supply-chain savvy and stock, but has been recently heavily impacted by the Covid outbreak in Southeast Asia.
- Volkswagen reported that its unit in the Czech Republic will produce 250,000 fewer cars than planned, cancelling most of its working shifts until the end of the year. The manufacturer recently idled production in its Mexico plant, and suggested that the shortage could last until the second half of 2022 before stabilizing again.
- GM reported that it idled eight of its North American assembly plants in September. The manufacturer also recalled a significant number of Chevy Bolts a month prior, due to battery defects.
While this shortage has opened conversations around new technologies and pushed the industry’s transition into the electric vehicle industry, the shortage is extending far beyond chips: rubber, electrical parts and labor are all running scarce and the shortage is transforming into a structural upheaval for the automotive supply chain that could last several years.
One major way that the auto industry is evolving in response to the shortage is the surge in used-car prices. According to a report by Manheim, used-car prices have been a major contributor to U.S. inflation this year holding roughly a 2% weighting in the overall consumer price index. The report also predicts that the Used Vehicle Value Index will climb to 30% compared to the previous year.
In addition, some manufacturers are even taking steps backward and are ordering microcontroller chips again. Microcontrollers are older chips that have been used to electronically control engines, airbags and other vehicle functions in the past decades. In fact, key microcontroller suppliers like Texas Instruments and Microchip Technology reported their highest lead times on record this month.
As 2021 comes to a close with no relief of the shortage in sight, it will be interesting to see how manufacturers continue to adapt to the gap in the supply chain and look to tech companies for solutions. Get a better understanding of the complexities of the global chip shortage with this Bloomberg infographic.
