The German car manufacturer Daimler has shortened employee working hours. And so has Audi. General Motors had to shut down one of its factories. Just like Ford and Jaguar Land Rover. Even Fca in Melfi halted production for a week.
This time, however, the COVID crisis is not to blame. Or at least not exclusively. We can point the finger at the worldwide microchip shortage currently plaguing various sectors worldwide, ranging from cars to household appliances, computers and smartphones. Global semiconductor production just cannot keep up with demand.
Understanding the crisis
Semiconductors are components that not only enable computers, smartphones and digital devices to function, but are now also indispensable for running many household appliances and medical devices. They are also essential in cars.
The shortage began in December 2020. Production slackened as the pandemic made it harder to gather and process all the necessary components, straining the logistics of the production chain, starting with transport, which saw rates triple because of COVID. However, demand took off for electronic devices, and therefore microchips, at the same time as the lockdown. Deliveries focused on the IT industry, which left the automotive industry out in the cold.
We should also factor in the trade war between the United States and China, which prompted Beijing to hoard as many microchips as possible before falling victim to sanctions. The fire that destroyed a factory in Japan in October 2020 and the snowstorm that ravaged Texas, bringing two factories to a standstill for several weeks, further aggravated the situation.
The pandemic slowed down production, as gathering and processing all the necessary components became increasingly complicated.
The New York Times reports that shortages in consumer products such as smartphones and laptops are in fact already being addressed, though sectors such as game consoles, which use very recent and sophisticated microprocessors, are facing particularly short supplies.
The situation is rather different in the automotive sector. When companies realised the true extent of the pandemic, they started to cut back on production plans and processor procurement. This meant that car manufacturers, when their market started to recover, found themselves lacking materials. The result: many companies, from Ford to Toyota, Volkswagen, Nissan and Fca, have also announced production cuts.
Deloitte reckons that the chip crisis could have a $52 billion impact on the automotive sector alone.
Deloitte reckons that the chip crisis could have a $52 billion impact on the automotive sector
How long will the crisis last? Intel’s CEO, who announced 20 billion in investments to build new factories, said however that the shortage could last another two years. Creating a new factory from scratch takes time. A heavily centralised production, tilted towards Asia, with only two factories in the world capable of producing the most sophisticated microchips (Tsmc in Taiwan and Samsung in South Korea) certainly does not alleviate any strains. South Korea and Taiwan alone are responsible for 83% of global production.
In the meantime, the war for the very few semiconductors on the market has begun. US President Joe Biden has pledged an investment of $50 billion to strengthen US manufacturing capacity and signed an executive order requiring the government to analyse and deepen production chains in a number of strategic sectors, including microchips, to reduce US dependence on foreign countries.
Europe is seeking to spur greater investment in Asia, particularly in Taiwan, as a way of dealing with the crisis. Brussels is also trying to shake off its over-dependence on Asia and the United States:one goal set out in the EU Commission’s “2030 Digital Compass” plan, unveiled in March, is to attain a 20% share of world production of innovative and sustainable semiconductors, especially processors.
Even Italy’s own Recovery and Resilience Plan mentions an ‘allocation of €750 million to back high-tech industrial projects, including semiconductor production’.