Ongoing Chip Shortages Lead U.S. Automakers to Ask for Government Intervention

An ongoing shortage in the global supply of crucial semiconductors is disrupting the automotive industry as it battles to keep up with a sudden surge in demand. 

The supply bottleneck has been caused by several factors, including the ongoing COVID-19 pandemic which disrupted production in the first half of 2020. This directly impacted manufacturing investment and caused fluctuations in any other industry that relies on semiconductors. At the same time, consumer demand for automobiles fell, causing semiconductor manufacturers to prioritize non-automotive applications.  

However, the automotive industry recovered much more quickly than expected, with all regions seeing a sharp recovery in car sales driven by repressed demand from the lockdown period. This has caused a supply issue on a global scale that is causing production problems for all carmakers. 

 

A Global Supply Issue

While the automotive industry recovered quickly, the ramping up of automotive semiconductor production for critical parts was much slower. The result of this is a global industry-wide issue that could continue throughout the entire first quarter. All major original equipment manufacturers (OEMs) have been affected and are now reviewing their production targets. 

“This is absolutely an industry issue,” said Toyota spokesman Scott Vazin when speaking to the Associated Press about the production cuts. Toyota partially halted production in China on January 11 before resuming output the next day while Honda is reducing output at five of its factories across North America. 

 

Semiconductor demand outside of Japan from January to November 2020. Image used courtesy of S&P Global Market Intelligence

 

In the UK, Honda halted production at its Swindon plant for four days in the week commencing January 14 due to the supply shortage, with a report in Nikkei Asia indicating that supply issues were particularly affecting the Fit/Jazz range at its Suzuka plant. 

Rival carmaker Nissan has also acknowledged the semiconductor shortage with a spokesperson for Nissan Europe saying, “Nissan will adjust production and take necessary actions to ensure recovery.”

VW Group is also reviewing production at its plants in China, Europe, and North America to manage the supply bottleneck. At this stage, VW is looking to minimize the impact but has not said which models or locations will be affected. Meanwhile, Audi has put more than 10,000 workers on furlough but remains optimistic that overall output for 2021 won’t be affected. 

 

U.S. Automakers Plead for Government Help

In response to the ongoing problem, American automakers have asked the U.S. government to help solve the debilitating shortage. The American Automotive Policy Council (AAPC), which acts as a lobbying organization for the likes of General Motors and Ford, is currently putting pressure on the U.S. Commerce Department and the new Biden Administration to encourage Asian semiconductor manufacturers to move output away from consumer electronics and reallocate it to automotive chips. 

 

VW electric vehicle construction at a plant in Shanghai, China. Image used courtesy of Aly Song and Reuters

 

“We have requested that the U.S. government help us find a solution to the problem,” said Matt Blunt, president of the AAPC, pointing to the impact that the shortage could have on the U.S. economy. 

German automakers are also looking for government help and have asked German Chancellor Angela Merkel for help in a bid to ease the shortage. The German car industry is hopeful that political intervention will move the country’s suppliers up the list of priority customers for Asian chipmakers, which could be bad news for U.S. automakers. 

 

The Future of Semiconductor Availability

Speaking to All About Circuits, Adam Khan, CEO of AKHAN Semiconductor, said, “The semiconductor shortage in the auto industry is further evidence of the gravity in securing the supply chain for semiconductors.” Semiconductors are a foundational aspect for most of the technology we use today, Khan explains, and the U.S. must do all it can to protect those that make them. 

“We've already seen how crucial it is to secure the supply chain… specifically in terms of China and the ongoing trade war. Now, we're seeing how the current situation will play out in the auto industry" Khan remarked. 

 

In a given automotive system, 100 different types of chips might be employed for communication, power transmission, and speed control. Image used courtesy of Automotive News

 

"In order to protect both American innovation and our national security, we must continue to incentivize domestic manufacturing and allocate funds toward advanced semiconductor materials so we can be sure there is never a shortage, no matter what the industry.”

COVID-19 put additional pressure on key production lines like IoT and 5G while at the same time piling pressure on production facilities throughout the entire industry and beyond. Given the widespread and ongoing impact of the pandemic and the fact that the semiconductor industry isn’t flexible enough to respond to short-term market disruption, it may be well into 2021 until these shortages start to settle down.

Indeed, some automakers are even anticipating shortages into 2022.