Last year was a nightmare for the semiconductor industry. The COVID-19 pandemic disrupted supply chains and caused widespread shortages. Now, the effects of that disruption are being felt in other sectors.
The automotive industry is one of them. Today’s cars have more technology in them than ever. That means the auto industry creates a ton of demand for semiconductors. Due to a shortage of the latter, several major carmakers are slowing down their production lines, ABC News and CNBC report.
Among those affected are Ford, Nissan, Volkswagen, Fiat Chrysler, and Toyota. While the companies aren’t all affected to the same degree, it’s clear that the disruption in the semiconductor world last year is going to create problems throughout 2021.
Think of the vehicles being made in recent years. The advanced features that consumers demand increasingly rely on semiconductors. Things like infotainment systems, self-driving and driver-assist programs, and even less fancy features like power steering all utilize semiconductors.
So far, the industry hasn’t been able to keep pace with demand from the auto manufacturing sector. This will be an important situation to monitor throughout 2021 for many reasons. Notably, vehicle production saw a significant dip in 2020 as plants were shut down due to COVID-19 risks. As auto manufacturers look to get back on track this year, a lack of semiconductors could put a wrench in those plans.
While most of the industry is feeling the effects of the shortage, General Motors, the largest manufacturer in the U.S., hasn’t had to slow down its production lines so far. Spokesman David Barnas told CNBC via email, “We are aware of the increased demand for semiconductor microchips as the auto industry continues its global recovery.”
“Our supply chain organization is working closely with our supply base to find solutions for our suppliers’ semiconductor requirements and to mitigate impacts on GM production,” he adds.
GM’s competitors haven’t been so fortunate. Ford has already confirmed that it will temporarily shut down its plant in Louisville, Kentucky. There, a team of 3,900 hourly employees builds the Ford Escape and Lincoln Corsair SUVs. Spokeswoman Kelli Felker said in response, “We are working closely with suppliers to address potential production constraints tied to the global semiconductor shortage.”
Meanwhile, Nissan’s Oppama Plant in Japan will reduce its production of the subcompact Note. That vehicle isn’t available in the U.S. market. It’s worth noting that Nissan’s domestic production hasn’t yet been affected by the semiconductor shortage—although the company is monitoring the situation closely.
Other manufacturers are also being forced to slow their production lines as they use up the last of their semiconductor inventory. Toyota has slowed production of its Tundra pickup at a San Antonio, Texas, plant. Fiat Chrysler has temporarily closed two international factories. Volkswagen faces international shortages but says its domestic production remains unaffected so far.
Toyota spokesman Scott Vazin told ABC News, “This is absolutely an industry issue. We are evaluating the supply constraint of semiconductors and developing countermeasures to minimize the impact to production.”
Plenty of Warning
Although the effects of the semiconductor shortage are widespread, analysts say that the warning signs have been there for a long time. That’s partially because semiconductors were diverted to consumer device manufacturers during the majority of 2020.
As massive demand for work-from-home devices and other consumer gadgets drove the market, the semiconductor industry prioritized those customers. Now, with the pandemic still raging, it has been difficult to catch up.
Kristin Dziczek, vice president of industry at the Center for Automotive Research, says that long lead times could make this a long-term issue. Dziczek notes, “There’s still some [semiconductors] coming through, just not the volumes that they thought there would be.”
It’s worth noting that it typically takes around six to nine months for the automotive industry to get chips from vast supplier networks. Since the shortage is already affecting production, lead times will be a major factor in determining how long it lasts. If component manufacturers and suppliers were already working on getting chips to carmakers several months ago, the industry could pull itself together rather quickly. If not, there could be a long road ahead.
Most automakers have been fairly tight-lipped about where their inventories stand and whether or not they will face severe production deficits later this year. They tend to opt instead for a broad “we are watching the industry closely” type of statement.
While the shortage of semiconductors is largely out of the control of auto manufacturers, they do have some means of keeping their production lines running. For instance, many companies are shifting production away from slower-selling vehicles in favor of more profitable segments like pickup trucks and SUVs, ABC News notes.
Fiat Chrysler is one company taking this flexible approach. In a statement, it said, “This will minimize the impact of the current semiconductor shortage while ensuring we maintain production at our other North American plants.”
Fortunately for both auto manufacturers and consumers, the semiconductor industry is poised for a strong recovery in 2021. As countries around the world roll out vaccines, hopes of curbing the pandemic are soaring.
Although hitting those numbers isn’t a given, it does seem likely as long as the world can get the pandemic under control relatively soon. With demand soaring in almost all sectors, the need for semiconductors will be higher than ever. Foundries around the world will be firing on all cylinders to fill orders and ship components throughout 2021.
Meanwhile, long-term projections for the semiconductor industry also reflect strong growth. With that in mind, the auto manufacturing sector should have nothing to worry about once this shortage is resolved and global production returns to normal.
Although 2021 may be a bit uncertain, things are moving in the right direction.