Why is there a shortage of semiconductor in the Auto Industry?

‘Semiconductors are the brains of power technology’. They are used in every electronic compound these days, from smartphones to laptops and iPads. It is termed as the most severe shortage that took place in years. The hardest hit is the chip-reliant car industry. 

Semiconductor Shortage in Global Companies

The automotive industry majorly sources its chips globally, such as Texas Instruments, STMicro, Intel, and Infineon, and majorly depending on TSMC. The COVID-19 pandemic predominantly affected the production of cars, due to which the demand for cars decreased globally, sending home millions of factory workers. 

For instance: A high-end luxury vehicle like BMW may have up to or even more than 150 microchips or electronic control units. Each of these ECUs uses semiconductors. These are also used in high-performance motorcycles. 

The orders for manufacturing of these semiconductors utilized in Myriad ways counting navigation displays, digital speedometers, and fuel pressure sensors. A total of $60 billion chip shortage was accounted for in the automotive sector during COVID. 

How Semiconductors impact Auto Industry Giants

Three plants of US car giant General Motors have been shut down and slowed down its production due to a lack of semiconductors. The company will miss its set target in 2021 as per the manufacturer.

This happened due to huge orders placed by the consumer electronics industry that stockpiled these semiconductors as there was a huge demand for smartphones, laptops, and even medical equipment for the upcoming 12 months. 

The US, Japan, Europe, Korea, and Taiwan manufacture these semiconductors in bulk. The auto sector consumes about 5 – 9% of the global semiconductor production, having term sourcing contracts for 2 to 3 months. The priority for the consumer industry leads to a shortage of the same in the Auto sector.  

A very recent example of this semiconductor shortage is the Ford Company. The company has shut down its factory in Germany while 1,00,000 fewer cars are manufactured by Volkswagen this year. 

Ford in India has received a massive downfall in demand and close to a $2 billion loss. Over 4000 employees have been impacted by this decision of curtailing operations in the country.  

This problem is estimated to be persistent until the first quarter of the financial year 2022. 

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