Auto Makers to be Hit Hard by Declining Chip Production

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In Southeast Asia where semiconductors are assembled, the resurgence of the Covid-19 virus has led to shutdowns of assembly plants as the vaccination rate is still low.  The supply of these chips has been affected by the pandemic and the industry as a whole is feeling the effects of the pandemic. Because of this, there is a widespread shortage of semiconductors that are vital to the production of automobiles.

This shortage of chips isn’t expected to stabilize anytime before mid-next year, and full recovery is projected to occur in the second half of the year. The outlook is certainly grim for the industry, as new lockdown restrictions are still being imposed across the Southeast Asia region. The outbreak of the Delta strain of the Covid-19 pandemic has caused disruptions in automobile manufacturing

Effect of Declining Supply of Semiconductors

As a result of the reduced supply of chips, automobile plants across the world are halting their plants or shutting them down completely. Toyota Motor Corp, one of the largest car manufacturers in the world intends to reduce its production by 40% and halt production at 14 of its manufacturing plants.

The Japanese automaker is known for stocking up on chips and isn’t usually disrupted by supply dips but that’s not the case this time. Unlike before when it could rely on local suppliers, now the automaker’s Asian suppliers are the ones that are most affected by the resurgence of the virus and the resultant restrictions on movement.

Ford Motor Co. also announced that production will be halted at its F-150 plant. The company cited a shortage of semiconductor supply due to the pandemic as the reason for its decision.  Previously, Ford had opted to reduce shifts at its assembly plants in response to the scarcity of chips.

It is expected that the current scarcity of chips will cause the production of cars around the world to decline by 6.3 million.  Only 7.1 million cars might be produced in the world this year if the market doesn’t recover soon enough. The 3rd quarter of the year is the one that’s projected to be hit the hardest; production is expected to decline by as much as 2.1 million units

Across North America and Europe, about 20 automobile plants have been affected by the chip crisis recently, and they have had to reduce or stop production completely as a result. Tesla, BMW, and Daimler are some of the long lists of automakers affected by the crisis. Together, these automakers are losing approximately $110 billion to the shortages of chips this year.

Producing chips requires procedures that take months. Add to this the fact that so many electronics now require chips during production to function, and you get a picture of why it is the case that the supply of chips is far exceeded by the demand for them globally. There is a limited number of chip factories across the world because constructing them costs billions of dollars, and not a lot of companies are willing to expend that much on creating them.

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