On March 25, General Motors Company (NYSE: GM) announced one of the first tangible signs that the Russia-Ukraine war may be impacting semiconductor production. The automaker plans to halt production of light-duty trucks at its Fort Wayne, Indiana assembly plant for two weeks from April 4 through April 18.
Important to note: this plant would likely be among GM’s last choices to close if no supply issues existed. The plant manufactures the very popular — and highly profitable — GMC Sierra 1500 and Chevrolet Silverado 1500 models.
The company said there has been “better consistency in semiconductor supply through the first quarter compared to last year as a whole,” but “there is still uncertainty and unpredictability in the semiconductor supply base.” The Fort Wayne facility halt marks GM’s first chip-related full-size truck work stoppage since August 2021. Until this development, all of GM’s North American assembly plants have maintained regular schedules since November 1, 2021.
Separately, but likely closely related, Volvo Cars on March 22 reported that it had canceled some work shifts at its largest assembly plant near Gothenburg, Sweden. According to Volvo, the work curtailments mean that its full-year 2022 deliveries will now grow only marginally versus 2021 levels.
Volvo, which is owned by China’s Zhejiang Geely Holding Group, claims it is short a specific chip that controls a range of functions in its models and took pains to note that the problem was unrelated to the conflict raging in Ukraine. Of course, given China’s close relationship with Russia, as well as GM’s March 25 announcement, it seems difficult to believe there is no linkage between Volvo’s news and the war.
GM’s (and Volvo’s) problems may trace to a steep reduction in neon gas production in Ukraine. That country produces about half of the world’s neon gas and ships most of it to the U.S. to be utilized in its semiconductor industry. The neon produced by Ukraine starts as a byproduct of steel and is refined to 99.99% purity levels at facilities in Ukraine. Mariupol-based Ingas and Cryoin and Iceblick, both headquartered in Odesa, are key producers; and Reuters reports that at least two of them (Cryoin and Iceblick) have ceased operations.
In the chip industry, neon gas powers lasers that etch patterns into individual chips. Etching removes layers from the surface of a wafer during manufacturing; each wafer typically goes through many etching steps.
To state the obvious, Ukraine companies face enormous obstacles in restarting production. Clearly, the chip industry in time will be able to source neon gas from other locations, but that switch cannot be made immediately. Certification of new facilities can take several months.
Reportedly, large chip makers like Intel, Samsung and TSMC have built up neon gas reserves, perhaps enough to allow a few months of production. Smaller chip fabrication facilities may be more significantly affected.
General Motors Company last traded at US$43.65 on the NYSE.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Views expressed within are solely that of the author. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
