Automakers were preparing for turmoil when the pandemic hit. They expected interruptions in the supply chain and falling sales. But they never thought that one of their biggest problems would be PlayStations a year later.
The strong demand for gaming systems, personal computers, and other electronics in an indoor world has depleted semiconductor supplies, forcing automakers around the world to look for chips that have become as important to mobility as gasoline or steel.
Virtually no car maker was spared. Toyota Motor has shut down production lines in China. Fiat Chrysler Automobiles temporarily suspended production at plants in Ontario and Mexico. Volkswagen has warned of production problems in factories in China, Europe and the United States. Ford Motor said last week that a factory in Louisville, Kentucky had been idle for a week because of the shortage.
When Covid-19 hit, automakers cut orders for chips in anticipation of falling sales. At the same time, semiconductor manufacturers relocated their production lines to meet rising orders for chips used in products such as laptops, webcams, tablets, and 5G smartphones.
Companies also upgraded their digital infrastructure to host online meetings and employees from home, while telecommunications companies invested in broadband infrastructure, which further increased demand for semiconductors.
Then, in late 2020, auto sales recovered faster than expected and surprised everyone. The resulting shortage of chips is expected to continue well into 2021, as semiconductor manufacturers can take six to nine months to realign production.
“Consumer electronics exploded,” said Dan Hearsch, managing director of consulting firm AlixPartners. “Everyone and their brother wanted to buy an Xbox, PlayStation, and laptops while the car was turned off. Then the auto industry came back faster than expected and this is where you run into this problem. “
While the shortage is unlikely to result in a large spike in car prices, buyers may have to wait longer to get the vehicles they want.
The chip shortage has its roots in long-term forces transforming the auto and semiconductor industries, as well as short-term confusion due to the pandemic.
In the past decade, automakers have become increasingly dependent on electronics To make their products even more attractive, features such as touchscreens, computerized motor controls and transmissions, integrated cellular and Wi-Fi connections, and collision avoidance systems with cameras and other sensors are added.
New cars can have more than a hundred semiconductors, and the lack of a single component can cause production delays or downtime, according to industry analysts and consultants.
Long-term pressure on chipmakers to control production costs has also played a role. Semiconductor companies such as Infineon, NXP Semiconductors and Renesas, which supply the automotive industry, had their most advanced chips manufactured for them by external manufacturing service providers, so-called foundries. However, manufacturers also have their own factories to make simpler auto chips, often making them on 8 “silicon wafers instead of the 12” wafers used in more modern facilities.
Manufacturers with equipment using older 8-inch wafers have not been able to easily increase production. They hadn’t invested much in new equipment lately, which is now harder to find because that technology is older, said Syed Alam, global director of Accenture’s global semiconductor advisory practice.
Geopolitics also played a role. The Trump administration imposed restrictions in September Semiconductor Manufacturing International Corporation, China’s main foundry that makes chips for automobiles and many other uses. The company’s customers were looking for alternatives and creating additional competition for chip supplies from other foundries, said Gaurav Gupta, vice president of research firm Gartner.
The chip crisis is an example of how the pandemic has rocked the global economy in unpredictable ways. Automakers are anticipating supply chain bottlenecks and the plants were closed in early 2020 because they feared workers could infect each other or because haulage companies had stopped delivering. Most US auto factories stopped production for about two months last spring.
But suppliers and automakers quickly found ways to contain contagion in factories and got assembly lines back on track. The effects on most parts deliveries were less than feared.
The semiconductor shortage came from the left field and hit the industry at a dangerous moment. Sales have fallen worldwide. In Europe, for example, they fell by 25 percent in 2020.
It all happens as automakers attempt to steer a shift in basic technology from internal combustion engines to batteries that has exposed them to new competition Tesla, the Californian company that has become by far the most valuable automaker in the world, and emerging Chinese manufacturers like Nio.
How long the deficiency will last is unclear. It can take 20 to 25 weeks from the time new chip manufacturing orders are placed and move down the supply chain to reach cars, said Michael Hogan, senior vice president at GlobalFoundries, a major chip maker serving the auto industry and others Markets.
“We’re doing everything we can to prioritize our production for the automotive industry,” said Hogan.
German auto electronics company Bosch said the shortage was particularly acute for integrated circuits that control engines, transmissions, and other key functions. “Despite the difficult market situation, Bosch is doing everything possible to supply its customers and to limit further effects to a minimum,” said a company statement.
Automakers and suppliers are responding as best they can. Honda said it didn’t have to stop any production lines, but prioritized its most popular models. BMW, based in Munich, said it was able to keep production going, but had “been closely monitoring the situation” and was in constant contact with suppliers.
The German supplier Continental, which is best known for tires but also produces electronic components, asked the semiconductor manufacturers to build capacities in the foundries that produce chips.
“Future investments in these foundries will therefore be of crucial importance so that the automotive industry can avoid such upheavals in the supply chain in the future,” said Continental in a statement.
Infineon, based in Munich, announced that investments in new production capacities in 2021 had increased from 1.1 billion euros in 2020 to up to 1.5 billion euros or 1.8 billion US dollars. The company is also increasing production at a new chip factory in Villach, Austria that will produce 12-inch wafers.
However, it will be some time before semiconductor manufacturers catch up. In the meantime, PlayStations have priority.
“Automotive came back and they are no longer the top of the chips,” said Gary Silberg, global head of automotive practice at KPMG.
Neal E. Boudette and Hisako Ueno contributed to the coverage.