Car manufacturers facing shortages of vital semiconductor chips are hurriedly trying to overhaul their supply chains to avoid over-reliance on just a handful of suppliers.
The shortage has affected the production plans of almost every car maker, including those operating in the UK, and will cut global car production this year by 672,000 units, according to analysis company IHS Markit, although others put that figure much higher. Investment bank Morgan Stanley points out that Ford and Volkswagen have each estimated a drop in first-quarter production of 10-20%, suggesting the overall unit reduction could run into the millions. Ford has warned its profits could be hit by between $1 billion and $2.5bn (£723m-£1.8bn) in the first half of this year as a result.
Car makers first discovered chip supply was drying up last year after they ramped up production to meet stronger than predicted demand as the first round of global lockdowns began to ease.
As the car factories idled, however, the chip manufacturers had found willing recipients for their products in phone, tablet and games console makers, which, in contrast to the car manufacturers, had seen demand soar during lockdown.
To the chip makers, car companies were just another customer – and not a very big one at that. “If I am a semiconductor manufacturer and have just 10% for automotive and 90% for non-automotive, and the 90% is increasing and 10% reducing, obviously I will allocate capacity to the 90%,” Ashwani Gupta, chief operating officer at Nissan, said recently.
Chip making is expensive and complex. “There are no easy fixes to the capacity constraints,” IHS Markit wrote in a recent report, in which it also predicts the shortage could run into the autumn.