There's a famine, and it's global. The world is starved for silicon in 2021, and perhaps there's no hungrier industry than the auto industry. As orders pile up at chip foundries, many automakers find themselves at the very back of a backlog at least a year in the making.
As a result, assembly lines have ground to a halt. North American automakers GM
And the shortage isn't just confined to the North American market. Advisory firm AlixPartners expects that the production cutbacks will cost the auto industry $61 billion by the end of the year, Bloomberg News reports. According to IHS Markit
In the auto industries case, the main reason for the shortage comes down to how chip foundries allocate resources. The serpentine nature of the silicon supply chain means that orders must be placed months, if not years, in advance, which wasn't a problem for automakers until the coronavirus hit. The dwindling prospects of their customer base caused many automakers to scale back chip orders.
These canceled orders resulted in excess capacity at chip foundries. Foundries quickly filled this capacity as the work from home trend accelerated, which caused the demand for PCs to skyrocket.
But today, rock-bottom interest rates have pushed many consumers back onto dealerships. But, unfortunately for dealers, there isn't any capacity left for them to meet this demand.
And for the shortage is only exacerbated by the outsized role of certain chip makers. Most notably, Taiwan Semiconductor Manufacturing Co
Nevertheless, TSMC, United Microelectronics
TSMC plans to expand its CapEx 50%, beyond current expectations, with much of that capital going toward increasing its ability to make new chips. But it can take years for new fabrication facilities to come online. And neither automakers nor the world has years to wait.
While the current shortage might come to an end in the coming months, the fact remains that the world has never been hungrier for electronics.
In the years ahead, automakers will still have to compete with the next gaming console or the next iPhone for their share of an ever-dwindling supply of silicon. Unless automakers reform their manufacturing processes from a "lean model," to a preemptive one, another shortage is almost inevitable.
- 1.https://www.cnbc.com/2021/02/10/general-motors-gm-earnings-q4-2020.html
- 2.https://seekingalpha.com/news/3660082-tsmc-will-raise-9-billion-in-debt-to-expand-capacity-amid-chip-shortage
- 3.https://seekingalpha.com/news/3659294-auto-chip-shortage-driving-61b-in-lost-sales-faces-complicated-recovery
- 4.https://www.bloomberg.com/news/articles/2021-01-27/covid-pandemic-slows-down-chipmakers-causes-car-shortage?sref=DWzi38c2
- 5.https://www.reuters.com/article/us-autos-chips/chip-crunch-to-impact-global-auto-production-into-third-quarter-says-ihs-idUSKBN2A32DU?source=content_type%3Areact%7Cfirst_level_url%3Anews%7Csection%3Amain_content%7Cbutton%3Abody_link