How the Chips Crisis Affects the Automotive Industry

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The severe shortages of semiconductor chips will have a major influence on global vehicle manufacturing in 2021 and the following year, causing the automotive industry to suffer massive losses. According to a Bloomberg report, there is a severe scarcity of display driver chips, which is causing problems for a myriad of industries, including the automotive industry. The fact that cars now mostly come with one or more display screens adds more to the demand. The shortage of chips will almost certainly result in more production delays and price spikes for items that are already in great demand. 

In detail, here is how the chip crisis affects the automotive industry.

 

How it began

The COVID-19 outbreak disrupted supply chain and logistics systems that chip manufacturers relied on to keep operations running. Simultaneously, as consumers began to spend more time at home, there was a surge in demand for consumer electronics. Due to this highly increasing demand, chips are allocated to the IT industry that took away the supply of chips for the automotive industry.

The automotive industry faced a significant reduction in demand in the first half of 2020 as a result of the pandemic. However, since new-vehicle sales increased in the second half of 2020, the largely imprecise sales outlook at the time meant that manufacturers did not raise their chip orders significantly. This worldwide chip crisis continued throughout 2021 and it has brought assembly lines to a standstill throughout the world.  The ramifications of the chip shortage have spread beyond the automotive industry, with other industrial players battling to get chips. 

 

Study case of Nissan’s EV delay

Last June, Nissan announced the delay of launch of its flagship new electric car Ariya model to this winter due to the global chip shortage. Nissan Ariya, a new 100% EV  (Electric Vehicle) lineup, was initially supposed to go on sale in Japan from mid 2021, followed by Europe, North America, and China by the end of the year. However, the announcement in June explained that the limited-edition Ariya B6 model could only be ordered “this winter,” with no further explanation for other regions’ markets. This is because Nissan aims to ensure that it delivers the highest level of quality and care, so postponing the launch is deemed as the best option rather than sacrificing features. 

The case of Nissan is just one example out of many issues faced by car manufacturers. BMW AG, Honda Motor Co., and Ford Motor Co. are also negatively affected by the chip crisis. Renault has discontinued putting an enormous digital panel behind the steering wheel on its Arkana SUV in order to save cost on chips. 

 

Recommendation to overcome this

The chip crisis shows the vulnerability of supply chains, which rely heavily on Asia as a chip manufacturing center. Many automotive manufacturers are currently in crisis mode, with few expecting a quick resolution. To address the demand mismatch, automotive manufacturers and chipmakers will need to collaborate. 

According to a Deloitte research, companies should also examine how over-reliance on one region may threaten their capacity to continue doing business as usual. Add to it the danger of increasingly frequent unanticipated disasters, and it is clear that businesses must reorganize their global value chains to reduce and manage risks in advance. 

Based on an analysis by McKinsey, chip capacity will not catch up with demand in the automotive market in the near future. This is mainly due to the ongoing rise in the number of the processors required to power technological advancements like smart driver-assistance systems and autonomous driving. Companies may consider making targeted investments in supply-chain resilience, with a clear understanding of their reliance on certain components and supply risks. Many companies are concerned about the fragility of supply chains and the danger of relying on single suppliers. Therefore, there is a need to align with the current trend for greater regional sourcing.

 

Read Also: Opportunities for Supply Chain Industry in Southeast Asia

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