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Global chip shortage to cost automakers $210b

Ford said it will lose "about 50% of our planned volume in the second quarter" as a result

The global semiconductor shortage is on track to cost automakers over $200 billion in lost earnings in 2021, according to consultancy AlixPartners, as companies exhaust their stockpiles -- VW was among those lowering its forecast for deliveries to customers in H2 has a result of the shortage, while Ford said in April it was on track to "lose about 50% of our planned volume in the second quarter" due to the semiconductor shortage; having posted a 40% sequential decline in wholesales in North America in Q1 due to the industry-wide issue. (A Covid outbreak in Malaysia meanwhile has resulted in closures of chip assembly, test and packaging facilities.)

Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners said his team was now predicting 7.7 million units of lost vehicle production in 2021; up from a forecast of 3.9 million in May, adding: "Chips are just one of a multitude of extraordinary disruptions the industry is facing—including everything from resin and steel shortages to labor shortages. There’s no room for error for automakers and suppliers right now; they need to calculate every alternative and make sure they’re undertaking only the best options.”

Dan Hearsch, a managing director in AlixPartners’ automotive and industrial practice, added, “There really are no ‘shock absorbers’ left in the industry right now when it comes to production or obtaining material. Virtually any shortage or production interruption in any part of the world affects companies around the globe, and the impacts are now amplified due to all the other shortages. That’s why it’s critical that companies be armed with good information and analysis to begin with, and that they follow through with flawless, determined execution.”

As Gartner noted in May, the chip shortage started with power management, display devices and microcontrollers that are being fabricated on legacy nodes at 8-inch foundry fabs: "The shortage has now extended to other devices, and there are capacity constraints and shortages for substrates, wire bonding, passives, materials, and testing, all of which are parts of the supply chain beyond chip fabs. These are highly commoditized industries with minimal flexibility/capacity to invest aggressively on a short notice."

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The high capex nature of the industry means it is vulnerable to these feast then famine cycles, but this year's shortages are particularly acute. As Forrester's Glenn O’Donnell noted today (September 23) the transition to remote work and remote learning around the world spurred demand for chips (new laptops for remote learning and new routers to handle increased internet traffic at home) and when demand for consumer products came back, “the chipmakers were caught by surprise,” he said. O'Donnell added that he was seeing the shortage impact not just heavy industry but the digitalisation strategies of CIOs; citing one who "couldn’t source the specific PC configuration his organization had standardized on and was faced with the choice of buying a different configuration or shifting to a different vendor altogether", complicating his organisation's IT strategy.

Suppliers are working hard to boost capacity: Semiconductor Manufacturing International Corp (SMIC), China’s largest integrated circuits foundry, on September 3  announced plans to build a new $8.9 billion factory in Shanghai to produce semiconductors at the 28-nanometer node -- a technology not targeted by US sanctions. TSMC meanwhile is spending $2.8 billion to expand 28-nanometer production at its factory in Nanjing; a project approved by the Taiwanese government in July. And for all the automotive sector frustration, fabs are flat out.

The Semiconductor Industry Association (SIA) on September 23 put global semiconductor industry sales at $45.4 billion in the month of July 2021, an increase of 29.0% over the July 2020 total of $35.2 billion.

Everyone in 2021, it would seem, has a sustained appetite for semiconductors.

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