How The Global Chip Shortage Is Making Cars More Expensive
With the advent of technology, semiconductor chips have spread from computers and cars to even toothbrushes. This means that semiconductor chips are increasingly important, and very much in demand for a lot of sectors. However, with demand for chips continuing to outstrip supply, carmakers are starting to feel the pinch.
According to estimates, the automotive sector, which relies on chips for everything from the computer management of engines to driver assistance systems, is the hardest hit. Companies like Ford, Volkswagen and Jaguar Land Rover have shut down factories, laid off workers and slashed vehicle production. Stellantis, the world’s fourth biggest car maker, said on Wednesday that the chip shortage had gotten worse in the last quarter.
Image from: CNBC (How The Global Chip Shortage Is Making Cars More Expensive)
When automakers were first hit with chip shortages at the end of 2020, they tried to idle their factories until they could get enough chips in. This bit of poor planning during the pandemic and limited chipmaking capacity has severely affected the automotive sector, because even when automakers can secure orders, their chips often cannot ship.
With the crisis stretching into its fifth month and getting worse, automakers are getting increasingly panicked.
"This has the potential to be a longer-term issue," said Anna-Marie Baisden, an automotive analyst at Fitch Solutions. "This will only be exacerbated as vehicles become technologically advanced and use more chips."
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The chip shortage issue is further compounded by the fact that major car-chip makers NXP, Infineon Technologies and Renesas Electronics account for just 40 percent of supply, with the remaining 60 percent split between tens of thousands of smaller designers. It is often these smaller players that lack the resources and ability to get their chips manufactured at foundries when capacity is tight.
As a result, carmakers around the world are getting creative to keep at least some production moving forward. As a result, some carmakers are now leaving out high-end features as a result of the chip shortage, according to a Bloomberg report.
For example, Nissan is leaving navigation systems out of thousands of vehicles that typically would have them because of the shortages. Renault has stopped offering an oversized digital screen behind the steering wheel on its Arkana crossover, also in a move to save on chips. Peugeot is going back to old-fashioned analog speedometers for its 308 hatchbacks, rather than use digital versions that need hard-to-find chips.
Another reaction to the shortage is to allocate the scarce components to more profitable and better-selling vehicles at the expense of other models. For instance, Nissan, which in early January 2021 became one of the first automakers to warn of an impending shortage, is prioritizing chip supply to the two best-selling models in each major market.
Image from: Ars Technica (How The Global Chip Shortage Is Making Cars More Expensive)
Closer to home, Sime Darby Motors, the automotive arm of Sime Darby Bhd, expects the supply disruptions arising from the shortage of automotive semiconductor chips to “normalise” over the next few months.
However, it has been reported that brands from Ford to Hyundai to BMW have seen production hiccups due to the shortage of the crucial component for automakers.
The group, which commands 29 automotive brands, was “to a certain extent” affected by the global trend of semiconductor supply shortages, but is still optimistic of achieving better sales performance in “this calendar year”, said its managing director of retail and distribution for Malaysia, Jeffrey Gan.
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“To a certain extent yes, we have limited stocks at the moment. However [following] our communications with our principal [brands], we are pretty confident that things will normalise in the next couple of months,” Gan said.
Sime Darby Motors owns a few flagship brands in Malaysia including BMW, MINI, Motorrad, Porsche, Volvo, Jaguar, Land Rover, Ford, and Hyundai. Malaysia is an assembly hub for various models of BMW and its subsidiary brand MINI, as well as Volvo Cars in Southeast Asia.
The world’s largest chip manufacturer, TSMC (Taiwan Semiconductor Manufacturing Company), said on Sunday that it thinks it will be able to catch up with automotive demand by June.
However, Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., cautioned the crisis is far from over. His company, which is the world's most advanced chipmaker and will be critical to any resolution, expects that the car-chip shortages could last until early 2022.
Image from: CNBC (How The Global Chip Shortage Is Making Cars More Expensive)
The global chip shortage “has impacted new vehicle availability and deliveries across the industry at a time when demand is already high.” This will most likely mean an increase in car prices worldwide, which is a time of this pandemic, is not something that carmakers are hoping for. Only time will tell how this issue will be resolved.
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