Global Semiconductor Shortage Hammers Auto Industry

The surge in popularity for passenger vehicles and pickup trucks has put increased pressure on auto manufacturers around the globe, many of which are still trying to meet pent-up demand from factory shutdowns during the beginning of the pandemic. Now however, the auto industry faces yet another obstacle, this time a supply chain disruption due to a global semiconductor shortage.

According to the Financial Times, vehicle manufacturers such as GM, Toyota and VW, are struggling to source chips that are used throughout their vehicles, including entertainment centers and anti-lock brakes. A corresponding rise in demand for gaming consoles, TVs, and computers — largely as a result of the pandemic — has dried up the supply of semiconductors.

The unanticipated supply disruption has caused significant harm in terms of output to numerous automakers around the world. Vehicle manufacturers have been left scrambling, trying to ensure that the limited supply of chips they do have are allocated towards their best-selling models. Simultaneously though, major chipmakers such as NXP and Renesas have been mulling a price increase — not necessarily as a result of a surge in demand, but due to the rising costs of raw materials.

VW for example, has lost nearly 50,000 cars in production in December due to the chip shortage. The European automaker suffered the impact the most in models that use its Electronic Stability Program, which, according to VW, is “a system of sensors that works with a car’s Anti-lock Braking System to prevent the wheels seizing up after an unexpected swerve.” The supply shortage is also dampening VW’s sales in China, a country which accounts for approximately 40% of the automaker’s operations. In 2020, VW delivered 3.85 million vehicles — a decrease of 9.1% compared to the year prior due to the pandemic.

Although the new year could be an ideal time for major automakers such as VW to play catch up in pent-up demand, the rising global chip shortage could significantly dampen those recovery efforts. As AutoForecast Solutions CEO Joseph McCabe notes, the semiconductor scarcity could very well be a pre-cursor for potential shortages further down the supply chain, including rare-earth minerals — many of which are used in batteries for today’s electric vehicles.

Information for this briefing was found via Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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