As the worldwide shortage of semiconductors worsens, consumers are facing rising prices and shortages of products such as games consoles, cars, TVs and smartphones. The shortage is hugely impacting the motors industry with announcements this week from Ford and General Motors that several factories in the US will halt production due to the issue.
The shortage of these essential chips – the “smart” element within every electronic device – has been gradually worsening since last year. At the outset, the issue was a temporary delay in supplies as manufacturing plants shut down when the Covid-19 pandemic first hit.
Despite production now being back to normal levels, a surge in demand fuelled by the effects of the pandemic has pushed the problem to crisis point.
The rise in demand has been driven by increased investment in electric vehicles by carmakers as well as a boom in sales of computers and TVs, the launch of 5G-enabled smartphones and new games consoles. Cars use dozens of semiconductors to control air bags, windows and other parts.
“We continue to work closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate impact on GM,” GM spokesman David Barnas said. “Our intent is to make up as much production lost at these plants as possible.”
The pandemic-related chip shortage has hit nearly every major automaker, leading to production cutbacks worldwide that have also affected Toyota, Volkswagen, Honda and others. Chinese electric-vehicle maker Nio also temporarily halted production in March.
Ford said profits could be hit by as much as $2.5 billion this year as a result of the shortages. Nissan has also begun slowing production at plants in the US and Mexico, and General Motors has said it could also be facing a drop in profits by as much as $2 billion.
The global auto industry will produce 1.5 million to 5 million fewer vehicles this year than originally planned because of the supply constraints.
There is no quick solution to the issue, despite pressure from major governments and businesses to ramp up production. Chip factories cost billions to build or expand, so there is no simple way to quickly boost production.
The complexity of auto supply chains is also not helping the problem. GM alone buys auto parts from roughly 250 suppliers that in turn buy chips from 11 different semiconductor makers.