A global shortage of microchips has paused manufacturing of many new cars on at least four continents. The consulting firm AlixPartners says that automakers will produce 1.5 million to 5 million fewer vehicles worldwide than planned thanks to the chip crunch.
A combination of factors created the problem. The Washington Post explains, “The roots of the shortage lie in the early weeks of the pandemic, when auto plants worldwide abruptly shut down amid widespread stay-at-home orders. Auto sales fell by almost half between February and April. As a result, car companies and their parts suppliers drastically cut their semiconductor purchases.”
Even those that didn’t are not immune to the problem. Hyundai, and its Kia sub-brand, “are the only global automakers to have maintained a stockpile,” Reuters reports. But “if it doesn’t ease soon…the shortage could hit Hyundai, too.” The company has begun slowing output of its slowest-selling models to preserve supply for better-selling models.
Meanwhile, people working and studying from home began buying new consumer electronics to make their lockdown lives easier, using up the available chip supply.
Supply Chain Questions Unresolved
Microchip manufacturers generally prefer to build chips for consumer electronics like cell phones and video game systems. That’s because the chips that power those devices are more complex and carry higher profit margins. The chips that automakers use are comparatively simple and less profitable.
Automakers are reluctant to change the chips they use because they have gone through lengthy safety and reliability tests. Changing designs to accommodate newer chips would mean expensive revalidation. Yet, Ambrose Conroy of Seraph Consulting, which has been advising automakers on the shortage, says they may have no choice. “They don’t want to spend the money to revalidate chips and change things within the vehicle, but they know they have to,” Conroy says.
Simply waiting for chip manufacturing to catch up may take months. Jacques Aschenbroich, CEO of car parts supplier Valeo, told the Financial Times “The second quarter is going to be difficult . . . There should be a recovery in the second half of the year. That’s what the entire industry is thinking about.”
