Why is there a Chip Shortage?
The semiconductor chips that control so many vehicle functions are scarce, and the blame falls partly on the auto industry itself.
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If you've been in the market for a new or used vehicle lately—or even if you haven't—you've no doubt heard how great an impact the global computer chip shortage has had on automakers. Unable to secure the chips that control features as straightforward as heated seats and as complex as infotainment touchscreens, carmakers have been forced to idle entire assembly plants as they wait for these microprocessors to arrive.
The result has been a squeeze on the supply of new cars and trucks, making many models impossible to find and sometimes leading to hefty dealer markups and long delays for vehicles on order. This has, in turn, led to surging prices of used cars as dealers desperately try to meet demand from buyers who need an automobile right now.
Let's take a deeper look at why there is a global chip shortage and when things might get back to normal.
Chip Factories Couldn’t Meet the Demand
The roots of the microchip shortage actually predate the pandemic. An industrial world hungry for semiconductors saw demand rise from 2019 to 2021, but with plants already running at 90% capacity, there was no commensurate increase in overall production during that period.
Fortunately, chip sales surged last year, to an all-time record of 1.15 trillion. How did this happen? Recognizing that it could no longer satisfy demand, the industry mounted an intense build-up of production capacity, an initiative likely to continue over the next few years as governments around the world invest in increasing crucial chip-building capacity.
The Auto Industry was Left in the Cold
If record numbers of chips are now being produced, why is there a chip shortage for cars? Facing an uncertain global economic crisis at the start of the pandemic, automakers pulled back on production, which meant ordering fewer microchips. When that happened, chip manufacturers pivoted to other customers, particularly companies making consumer electronics like laptops and video game systems, which were selling briskly as populations under lockdown tried to outfit their work-from-home offices and keep themselves entertained.
When automakers began restarting assembly lines, they discovered that they had been shuffled to the back of the line for the specialized semiconductors needed for their vehicles, as microchip factories were happy with the new and profitable contracts signed with consumer electronics companies. Complex supply chains in the auto industry, combined with a reliance on older technologies in their chip designs, further impeded recovery.
When Will Production Be Back to Normal?
Timelines for securing needed chips have in some cases doubled compared with the pre-pandemic timeline, and it could be some time before the two industries are once again in sync. Volkswagen, for example, is predicting that the shortage will hamper output until at least 2024. BMW is a bit more optimistic, pointing to 2023 as a potential end point for the current crisis.
