The Long-Standing Impact of the Chip Shortage.
Updated: Mar 20
The Covid-19 pandemic has had a significant impact on a vast number of industries, and will continue to complicate familiar processes for the foreseeable future. The automotive industry, in particular, has seen a sizable hit in several different areas, ranging from manual labor capabilities, with plants temporarily closing or running at limited capacity, to R&D, with a lack of general funding. This article will focus on the lack of semiconductor chips, which are becoming increasingly crucial to the large scale production of vehicles.
Semiconductors are typically silicon based materials that are capable of conducting electricity. Often, they can be broadly categorized as either memory chips, microprocessors, commodity integrated circuits (standard chips), and Complex SOC’s (System on a Chip). The role of a semiconductor in a modern automobile ranges from basic functions such as steering wheel inputs and brake lights to more niche features such as infotainment systems. Effectively, any electronic/automated function that a vehicle offers is done so through the use of a semiconductor. The typical vehicle has over 1000 chips, and this value is only set to increase as the industry shifts electric. So, seeing as these chips are so crucial to the industry, why is there a shortage?
The semiconductor industry is responsible for far more than just producing chips for automobiles. Cell phones, smart watches, and all other electronic devices also rely on such chips. In a time where demand far exceeds supply, the industry has been forced to prioritize production for markets that account for a greater percentage of sales - not the automotive industry. Aside from the general increase in demand for technology due to Covid’s virtual world, isolated instances such as the drought in Taiwan leading to a decrease in TSMC’s production (the largest global chipmaker) have crippled an already struggling supply. The recent trade war between US and China has also had various effects on the global chip shortage, seeing as Asia is responsible for 75% of chip production. Ultimately, regardless of the importance of semiconductors in producing a vehicle, with an increased demand for electronics, the automotive industry could not compete for an already dwindling supply. Last year has seen alarming drops in production rates and revenue, affecting nearly every single company including giants such as General Motors and Ford. Both companies report that they expect to see around $2 billion less in earnings in 2021. There are several statistics that can be found to further highlight the importance of this issue, but there is a long term impact that must also be considered: electric vehicles.
General Motors has previously announced that by 2035, it will exclusively offer electric vehicles. Ford has similarly stated that by 2030, EV’s will make up 40% of their lineup. Such statements can be found from nearly every large automobile manufacturer, and they truly suggest a commitment to the future of the industry. Chips, however, potentially stand in the way of these already lofty goals. EV’s naturally require a wide variety of chips. Currently, the excessive demand for chips has led to the industry naturally prioritizing its greatest customer: electronics. One may believe that once this pandemic is done and dusted, everything will return to normal. While that is most definitely true to some extent, Covid-19 has also highlighted some of the benefits of a more digitally connected world, including increased productivity rates and satisfaction when working from home. This new philosophy that is potentially here to stay, combined with an increasingly automated world, may prove to be a challenge for the automotive industry. After all, electronics are effectively competition when it comes to the production and distribution of chips. In other words, will the demand for electronics post-pandemic grow to an extent that it negatively impacts the ability for EV technology to enter the market as quickly as possible? Potentially.
At the end of the day, Covid-19 has made a clear immediate impact on the progress being made in the technology sector, but it is important to also consider the long-term innovation that is currently being put on hold. While the number one priority should still be to ensure that automobile manufactures are able to come out of this shortage and continue producing for the immediate future, it is worth taking a look into measures that can be put into place to continue developing for the future.