Global chip shortage costs automotive sector €90 billion

31 May 2021 3 min. read
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The world is in the grips of a global chip shortage, with demand for semiconductors surging beyond capacity for supply. The shortage is crippling players in a diversity of industries, though carmakers seemingly have it the worst.

At the beginning of 2021, the crisis was forecast to incur losses of approximately €60 billion in the automotive sector – but that figure having risen by a third in the months since. Now, according to a study by consulting firm AlixPartners, losses relating to the chip shortage stand at over €90 billion for the automotive sector.

Meanwhile, the industry has lost considerably more production volume over that same period. In January, AlixPartners projected that manufacturers would produce about 2.2 million fewer cars than planned – but currently, the loss for 2021 has already spirally to an estimated at nearly 4 million vehicles.

China dominates the global semiconductor market

Such is the fall in production that many major car manufacturers – including Ford, General Motors, Volkswagen, Toyota and Daimler – have been shutting down their factories. With no end in sight, according to the researchers, the automotive sector will have to deal with this problem for some time to come.

“There are up to 1,400 chips in a typical car today,” said Stephen Dyer, a Managing Director with AlixPartners in Shanghai. “And that number will only increase as the industry continues to advance towards more electric vehicles and, in the longer term, self-driving cars. The chip shortage is therefore a critical problem for the global automotive sector.”

Asia’s chip march

A chip shortage, also referred to as semiconductor shortage or chip famine, is a phenomenon in the integrated circuit industry, when demand for silicon chips outstrips supply. The origin of this particular shortage has its roots in the global pandemic. The lockdowns ushered in to combat the Covid-19 outbreak caused disruptions in supply chains and logistics systems chip suppliers depended upon to maintain production, while at the same time, as people began spending much more time at home, there was a boom in demand for consumer electronics.

With the surge in the consumption of products such as game consoles, smart TVs and laptops, for example, each containing many chips, there are simply not enough to go around at present. While, as AlixPartners’ Hong Kong based Managing Director Shiv Shivaraman noted in the report, “the pandemic has exacerbated the chip crisis,” however, there might already have been a shortage without the crisis.

China has grabbed semiconductor market share from the US

In recent years, the US has deployed a number of increasingly stringent sanctions on its rival superpower China. The official line from the US government has been that this is because chip production in China would mainly have military purposes. However, due to the interconnectedness of global trade, and many nations’ reliance on China for the production of affordable technology, the measure has created wide-ranging supply problems.

As the global chip market is increasingly dependent on Asia, while the US and other countries have tried to take matters into their own hands, they lack the manufacturing capacity to meet the high demand for chips. With or without the pandemic in this case, the ramping up of the trade wars between the US and China would likely also have led to a global chip shortage.

In order to learn from this, and avoid further shortages, UAE based Managing Partner Alessandro Missaglia warned that automotive companies should now take supply chain resilience into their own hands. The AlixPartners expert added that an effective strategy in this regard would include, “Long-term forecasting, strategic buffers, early-warning systems, and parts-design are a few tools and techniques to take a more active role down the supply tiers across many commodities.”