You may have noticed that it’s difficult to get ahold of new high-end graphics cards and game consoles these days. In large part, that’s due to an ongoing global shortage affecting semiconductor foundries. As it turns out, the problem is even more pronounced in the auto industry. In fact, it’s getting so bad that a number of OEMs, including Ford and General Motors, have had to go as far as idling shifts and even entire factories.
Ford had to stop production in Kentucky in December of 2020, and in January, it ordered a month-long pause at a German factory. Stellantis (the new company formed by a merger between Fiat Chrysler and Peugeot) reduced output at factories in the US, Mexico, and Canada around the same time. As did Audi, which had to idle 10,000 employees in Germany, CEO Markus Duesmann said, telling the Financial Times that the problem involved “a very long chain with different supply levels on the components that we are short.” Subaru’s Gunma factory in Japan has been affected. Production of Toyota’s Texas-produced Tundra has, too.
This week, more hits keep coming. Mazda just announced it might have to cut output by 34,000 units this year due to a lack of chips. Nissan’s truck factory in Mississippi has reduced its hours. And on Wednesday, GM said it will halt production at factories in Kansas, Canada, Mexico, and South Korea. In many cases, the automakers are trying to prioritize their more in-demand products, but as some of those closures show, that isn’t always possible.
Why Is This Happening?
As you might expect, the problem has its roots in the coronavirus pandemic. As countries around the world imposed new public health rules, automakers cut output, and car dealerships and showrooms closed to stop the spread of the disease. As sales dried up, the OEMs scaled back orders for semiconductor chips, dozens of which go into every new car to control just about everything. Similarly, the chipmakers scaled back their production of these chips in response to dropping demand.
As Covid-19 restrictions have eased in certain places, demand for new vehicles has returned, but the automakers have a problem. In the absence of automotive orders, foundries and fabs switched their capacity to fulfilling other orders instead. And despite its size, the auto industry is actually a bit of a minnow when it comes to buying chips, accounting for roughly a tenth of global semiconductor fab output. Consequently, the bottleneck is expected to last for months.
Is Everyone Affected?
The problem has not affected the entire auto industry equally. For example, Toyota says it diversified its supply chain and increased inventory of components after the 2011 earthquake and tsunami in Japan. And Hyundai Motor Group didn’t cancel any of its chip orders in 2020 due to Covid-19, so it is virtually unscathed. But the hit to the industry has been estimated at $61 billion.
Don’t expect the problem to be constrained simply to the auto industry, either. On Thursday morning, Qualcomm warned that “the shortage in the semiconductor industry is across the board.”
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