The worldwide chip shortage is not expected to go away soon. It could take one or two years to get back to a reasonable supply-and-demand balance in the semiconductor industry, according to Intel. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, however, recently indicated that the chip shortage that has hampered car makers could start to ease in the next few months after it ramped up its production of auto chips. While TSMC and Intel are adding new chip-production plants, some of that capacity will not be ready for two more years. The long and complex manufacturing process of semiconductors makes new capacity-building capital-intensive and time-consuming.

While gas and diesel automakers are struggling due to the chip shortage, Chinese assemblers of electric vehicles, like NIOXpeng and Li Auto have secured enough chips to keep their production lines going for the foreseeable future. Electric car manufacturers have done better during the chip shortage because of their smaller production volumes and reliance on higher-end chips like artificial intelligence (AI) processors, used for complex data processing tasks that can cost $100 apiece. Chipsets with AI processors support intelligent driving technology including cruise control, level 4 autonomous driving, and self-parking. Also, China’s carmakers, even those that assemble internal combustion engine vehicles, have larger stockpiles of chips. Ford, which makes Focus, Mondeo and the Territory EV in China, indicated its five factories are unaffected by the shortage.

Traditional carmakers consume high volumes of microcontroller chips for engine control, which are currently in short supply despite their low $1 cost. Due to the shortage, the global output of internal combustion engines is expected to decrease by up to 700,000 vehicles in the first quarter (4 percent of worldwide production). Ford decreased its first-quarter roll-out including the F-150 truck by 20 percent, and General Motors indicated that the extended downtime in Kansas, Canada and Mexico until mid-March will cost its 2021 bottom line by between $1.5 billion and $2 billion.

Car dealers have barren parking lots, and consumers are facing limited options on new vehicle purchases and must wait for their new vehicles to be built. Tens of thousands of new vehicles sit in parking lots near factories awaiting semiconductor chips before they can be shipped to dealers. These so-called “dead” cars are vehicles that have rolled off the assembly line and are otherwise ready for sale, but for the missing chips. The number of “dead” cars is expected to grow. GM announced that plants in Indiana, Michigan, and Mexico that produce the Chevrolet Silverado and GMC Sierra will stop production due to chip shortages. GM had so far avoided chip-related shutdowns by skipping some features, and by building some trucks and adding the chips in later. Leaving vehicles partially finished and cutting out certain features are two solutions for automakers.

The global automotive industry bought $43 billion worth of chips in 2019, about 10 percent of the worldwide supply. Taiwan Semiconductor Manufacturing Corporation is the biggest supplier of microcontrollers used in automobiles, with supplies to the sector making up 3 percent of its quarterly sales. The company is on track to increase the output of microcontrollers used in cars by about 60 percent this year compared with last year.

About 25 percent of the market for automotive chips is in China. China’s 2018 automotive chip market was valued at 61 billion yuan ($9.5 billion). The market for chips could more than double in 2022 due to the increasing application of intelligent features in new vehicle models such as self-parking, satellite navigation, voice command and Internet of Things (IoT) technology.


The chip shortage is not expected to end very soon due to having to restore factories to pre-COVID levels of production and the rising demand for chips as consumer demand for autos using more and more chips increases. Expanding production capacity for manufacturing chips is capital-intensive and time-consuming. Electric vehicle manufacturing have fared better–so far–with regard to chips because of their smaller base and the more expensive AI chips that they need. China’s factories are also in good shape for both electric vehicles and ICE vehicles because of the larger inventories that they maintain. The chip shortage may serve as an analogy to some of the material concerns regarding minerals needed for “green energy” deployment, since mining and processing of massively increasing volumes of those products might similarly prove problematic to government and industry designs.

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