Whatshot
Microchip Shortage in the Automotive Industry
Microchip Shortage in the Automotive Industry
Date: 2021-09-23
China, 2021: a year-long shortage of computer chips has been severely disruptive for automotive manufacturers. It is not something that many people walk around thinking about. Stop for a moment to consider how much of our lives have become completely dependent on technology. The average modern vehicle gets shipped with over a million lines of code and while this has been a great leap forward for safety, comfort and in recent years even giving autonomous features to cars - or at least pseudo-autonomous - manufacturers are now finding themselves struggling to keep up with the supply of essential components for all these features which are now expected by consumers - microchips. It is not just entertainment systems or on-board computers that require these parts, but these days even systems like power steering require computer components, and as a global shortage of microchips continues to be a major issue world-wide, we have seen it impact companies across the world.
The general manager of an electronics company in Guangdong province has expressed how in 2020 the chip shortage was relatively small: "I didn't expect to be entirely out of stock today... some of my friends, who have 20 years of experience in the industry, said they have never encountered this situation." he said.
Data shows that after mobile phones, PC / tablet manufacturing and consumer electronics, automobiles account for the fourth largest demand for microchips. With around ten per cent of global chip downstream demand coming from the automotive industry, as the supply dried up, it caused factories to slow production and in some cases even stop completely. Scenes of car lots with partially finished cars parked outside factories, unfinished due to the lack of essential components, have begun to surface on Chinese social media.
As we headed into the second half of 2021 the chip shortage worsened, even when compared with the first half of 2020. The current price of automotive chips in China has increased between ten to twenty-fold since July. Malaysian manufacturers of microchips bound for the automotive industry have halted their packaging and testing plants, which has forced car companies to significantly reduce, and even in some cases to stop production.
And this isn't a problem just for Chinese companies. With reports from brands including Volkswagen, Honda and Nissan saying this disruption in supply has affected their production.
On September 4th, the general manager for FAW Volkswagen - a joint venture between Chinese car maker FAW and the Volkswagen group - told a reporter from a Mainland financial media outlet, "I'm not going to lie, we've been halving our production for nearly four consecutive months now." And data shows from April to July 2021 the automaker, which manufactures among other brands Audi and VW for China, has reduced its year-on-year volume by up to sixty per cent. Another source at Dongfeng Honda said that the company's most sold models have seen production cuts of up to eighty per cent.
Early September reports detail a sales manager for Mercedes-Benz in Beijing saying the E-class and GLC are basically out of stock, with a waiting period of up to three months. While a sales consultant for BMW stated that customers were waiting about two months for 3 and 5 series models.
The shortage of semiconductors has been quite disruptive to say the least, part of this has been linked to the COVID-19 pandemic, but as China (who by far leads manufacturing output) reopened after the first wave, the combination of cancelled orders by automotive manufacturers, coupled with people being forced to stay at home (further driving demand for consumer electronics) created a huge issue for the automotive industry.
The effects of this crisis haven't seen their end, as demand seems to remain high for semiconductors. Other notable issues facing this bottleneck include complex licencing for intellectual property that most ISAs (Instruction Set Architecture) have. ISAs such as x86 or ARM allow for software manufacturers to create cross-platform machine instruction, however they are the first stumbling block when it comes to red tape, which bureaucratically limits the production and sale of semiconductors.
While I have also heard rumours that leading manufacturers are hoarding their stock and artificially driving prices in their favour, I don't believe this could account for the intense lack of supply we are currently experiencing. Lastly, I would like to acknowledge how complex the process of manufacturing some of the more high-end microchips is. With architectures now getting as low as 5 nanometres (5 nm) for companies such as Intel, the complexity in production must be recognised.
Some of the effects of this can already be seen in the alternative designs that have been used in new low cost cars, reverting to analog clocks, and analog HUDs, speedometers and even odometers. In the more expensive cars there is very often exponentially more tech required. And as mentioned before, there are so many simple chips missing from production at this stage that complexity is not the only factor in this situation. While the rate of production has said to be back to levels seen before the pandemic, some analysts say that this problem could continue well into the end of this financial year. Only time will tell if a solution will be reached that can somehow save the auto industry from having to cut their production number by so much.

