As the current semiconductor shortage deepens, auto manufacturers are feeling the effects and fighting for chips to keep their production lines running. To make matters worse, the shortage isn’t expected to abate any time soon. One of the biggest questions looming is which car company will be least affected by the crisis.
The current chip shortage was triggered by the global pandemic, which caused huge demand for a variety of goods, like laptops and game consoles, which put pressure on semiconductor manufacturers. This surge in demand left little chips for the automakers, since passenger vehicle electronics need relatively less semiconductor content than the electronic goods.
Not all car manufacturers, however, are affected the same way. Since chip shortages are a reflection of the global pandemic, the car companies hurt the most are the ones that rely on shipments from and production sites in countries with lockdowns and travel restrictions.
For auto giants like Toyota and Nissan, which have large production bases and suppliers in countries like the US, China and Japan where the pandemic is waning, the chip crisis has only slightly affected business as usual. On the other hand, companies like Volkswagen and Ford which have a greater presence in Europe, where the pandemic is still raging, are being hit harder.
That is not to say Toyota and Nissan have not been affected at all, but their impact has been far more manageable in comparison. For instance, Toyota has had to cancel overseas vehicle production, but that decision was made to divert chip supplies from abroad.
In addition, Toyota and Nissan have an advantage by virtue of their size and global reach, having numerous suppliers and production sites around the world. As a result, if one supplier or production site is blocked due to a lockdown, the car manufacturers can quickly shift production to another.
One area where the chip shortage has been felt by all automakers is electric cars. The semiconductor shortage has caused the production of electric cars to be greatly delayed, as automakers struggle to secure the necessary chips.
What Can Be Done?
Several measures have been put in place to try and alleviate the effects of the shortage, but short-term solutions have been limited.
In the US, for instance, the government pledged to spend US$37 billion on semiconductor production, with the intention of expanding chip production and improving access to chips for automakers. Additionally, car companies have also been working together to share chip supplies.
Perhaps the most effective solution has been the diversification strategy, where car companies have diversified the sources of their chip supplies and the products they make, in order to mitigate the chip shortage. In fact, this is something Toyota and Nissan have been implementing for a long time, in order to insulate them from the effects of any one supply disruption.
How Are Each Affected?
Nissan has seen its production numbers decline, but the company has had to close fewer plants than other automakers, as it has managed to find alternative chip sources. Toyota, meanwhile, has been able to keep its production lines running, even during lockdowns, by quickly switching production sites or suppliers when needed.
It is worth noting, however, that chip shortage has been felt most by companies that rely heavily on Europe. Volkswagen, for instance, has had to halt some of its electric car production in Germany due to the lack of chips, while Ford has suffered from shortages in Spain. In addition, BMW has had to close a facility in France due to the chip crisis.
Long-Term Solutions
Solutions for the chip shortage in the longer-term, are still being developed and implemented. Automakers have begun to increase their stockpiles of chips, in order to make sure that future production is not affected, while chip producers are increasing the size of their factories and developing new production technologies.
In addition, auto manufacturers are also turning to new business models in order to reduce their chip demand. This includes finding new materials or manufacturing processes to cut costs and reduce their dependence on chips.
How Can They Further Stay Prepared?
The chip shortage has highlighted the need for automakers to diversify their chip supplies, as well as the products they make. In terms of diversifying chip supplies, automakers should strive to build relationships with a wide range of chip producers, in order to reduce their dependence on any one supplier.
On the product side, automakers should focus on flexibility. Rather than putting all their eggs in one basket, car manufacturers should be prepared to shift production quickly, in order to take advantage of any opportunities that may arise in the chip market. This requires a focus on innovation and a willingness to experiment with new technologies.
Impact On Other Sectors
The chip shortage has had a major impact on other industries, such as consumer electronics and the gaming industry, which have been facing shortages of their own. Automakers are now facing direct competition for chip supplies from these other industries, as demand for chips increases across the board.
In order to stay ahead of this competition, automakers need to find new ways to secure chips. Automakers may also need to focus on stockpiling chips, even in times of relative stability, in order to avoid issues when the demand for chips increases.
Role of Government
The government has also begun to play a more active role in tackling the chip crisis, as it realizes the impact it is having on the auto sector. The US government has pledged to spend billions on chip production, while the EU and China have both enacted measures designed to ease the pressures of the chip shortage.
These government initiatives are important, as they can help ease the pressures on the auto sector. By ensuring the availability of chips, carmakers can focus on the bigger picture of building better cars and improving their production capabilities.
Conclusion
The current chip shortage has had a lasting effect on the auto industry, as car companies scramble to secure chips while facing competition from other industries. However, some car companies have been better-positioned to weather the storm. Companies like Toyota and Nissan, which have large production bases in countries where the pandemic is easing, have had more success in mitigating the chip crisis.
In the longer term, though, government initiatives and diversification strategies have been the key to success for car companies. By diversifying their chip suppliers and their products, automakers can better insulate themselves from the effects of a chip shortage in the future.
