Thursday, January 27, 2022

Reasons and Impact of Semiconductor Chip Shortage In The Automotive Sector 

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The automotive industry has experienced vast shutdown turmoil since the COVID-19 situation and for several other reasons. Now, it is experiencing a semiconductor shortage without any chances of a quick fix. It has to shut down production lines and the shortage is predicted to last for more than a couple of years according to experts.

Why is the semiconductor chip crucial in vehicles?

The semiconductors are called chips and are an essential part of vehicles. It supports several functions like infotainment, traction control, and navigation.

The side effect of a slowdown in the automotive industry has seen an increase in the sales of used trucks and pickups. Buyers are visiting MotorCloud in search of late-model, low-mile trucks. These trucks have the same fuel efficiency and features as the new models.

Reasons for the slowdown of semiconductor supply chain

The demand for semiconductor chips increased in the electronic industries after the coronavirus lockdown. People spent a lot of time with game consoles and watching TV. This is the primary reason that supplies to the automobile industry took a hit. Businesses and consumers started investing in servers and new laptops to cater to remote working and home-schooling for kids.

Semiconductor sales around the world had dropped between 2018 -2019 but in 2020 the sales increased by 6.5%. It was because people preferred personal mobility due to pandemics, so passenger vehicles demand had increased. Besides, buyers preferred vehicles with electronic-driven features. Therefore in 2021, the sales escalated to 26% more than in 2020.

Besides, temporary factory closures placed more pressure on the supplies. Early this year, there was a storm that halted the Texas factory production and in Japan, the factory was wasted by fire. Taiwan was hit by a drought, so the manufacturers are struggling to get enough water necessary in manufacturing chips.

Some other reasons that have declined the semiconductor scarcity are –

  • Chip hoarding [Chinese firms]
  • Poor inventory planning [Automotive companies]
  • Logjams [At the port]

Why was the automotive sector hit hard with semiconductor shortage?

The automotive sector had scaled down its orders at the start of the pandemic as vehicle demands dropped. When it was time to restart production, the automotive sector found itself last in the queue. The semiconductor business depends on volume and profit margin. The automotive sector is a small fraction of the semiconductor business, so as their business is in high demand the automotive industry is not observed as a priority. It means for semiconductor suppliers automotive is low margin outlet in comparison to the electronic companies.

What steps are taken to resolve the chip shortage?

Semiconductor chip demand is expected to increase because more and more sectors are undergoing digital transformation. Government and chip manufacturers are working towards increasing their supply chain capacity. However, this will take time because building a semiconductor factory is costly and needs a well-trained workforce.

At the moment, automotive firms are deflecting chips to segments in high demand like sedans, passengers, and utility vehicles. Some auto-makers are eliminating this feature from specific models for conserving chip usage.

The ultimatum is that due to increase in the pandemic condition the chips makers were placed in a precarious situation. They couldn’t handle the tech boom scenario and it is not going to get sorted overnight. Therefore, fleet owners will experience disappointment due to delivery delays for months, but they can look for the latest-model used trucks.

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