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Stifled car production attributed to shifting priorities of chipmakers

Global semiconductor shortage is expected to cost around $77.6 billion in lost revenue this year. 

The global shortage threatening the automotive industry doesn’t look to be resolved in the near future as it’s expected to worsen before improving.

US President Joe Biden has signed an executive order, which is intended to address the global shortage of semiconductors, which has impacted a wide range of industries, including the automotive sector.

Alix Partners, a US-based consulting firm, estimated that the semiconductor shortage would impact the automotive industry by roughly AUD$77.6 billion in lost revenue globally in 2021.

New cars rely significantly on semiconductors, also known as chips, as most petrol and diesel cars use between 50 and 200 chips, while hybrid and electric vehicles can use up to 3,500 chips.

Chipmakers have switched to producing chips for consumer electronics, leaving car makers in the dark as they move towards more lucrative opportunities.

Car manufacturers including General Motors, Ford, Honda, Volkswagen and Nissan have had their vehicle production lines impacted by the chip shortage as available chipsets have been allocated to personal electronics in lieu of the car industry.

Mercedes-Benz U.S. International Plant located in Tuscaloosa County. Original image from Carol M. Highsmith’s America, Library of Congress collection. Digitally enhanced by rawpixel.

The world’s chipset manufacturers that usually provide car factories with electronic components are now allocating an increased production to consumer electronics like the PlayStation 5, personal computers and 5G smartphones.

It’s worth mentioning that the automotive industry spends around US$40 billion a year on chips, which is about a tenth of the global market. By comparison, Mirabaud tech analyst, Neil Campling, estimates that Apple spends more on chips just to make its iPhones.

It’s been reported by Autoblog that the chip industry is preferring manufacturing these types of products as they yield high-end, high-margin semiconductors. Conversely, chips that are used in cars tend to be of a more basic design.

The auto industry is now being snubbed after shunning chipmakers last year during the coronavirus-driven car manufacturing downturn.

Automotive News Europe reports that German carmaker Volkswagen has begun investigating potential litigation and compensation against parts manufacturers Bosch and Continental in retaliation. Daimler has indicated that they may seek out reparations.

Volkswagen has been forced to limit production in Germany and in the United States due to the semiconductor shortage and the subsequent hold-up.

However, it’s worth noting that the strained relationship between carmakers and chipset manufacturers will ease as electric cars become more widely adopted. Electric and high-tech vehicles will use more, and higher-end semiconductors compared to their combustion-engine counterparts.

For the foreseeable future, tensions will continue on to later this year according to the information provider, IHS Markit.

Rather than vehicles becoming more expensive, experts anticipate car buyers may just have to wait longer for their new car.

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