The Chip Shortage: The Good News and the Bad News for Carmakers

The constrained chip inventory caused major disruptions in the car industry 6 photos
Photo: General Motors
GM's Flint assembly plantGM's Flint assembly plantGM's Flint assembly plantGM's Flint assembly plantGM's Flint assembly plant
The chip shortage has wreaked havoc in the automotive industry, and the majority of carmakers ended up struggling to deal with the disruptions hitting their daily operations.
Most of them turned to the same anti-crisis measures in an attempt to handle the constrained semiconductor inventory more effectively, regularly announcing temporary production halts or shipping cars without certain non-critical systems.

In some cases, these companies decided to keep the production going, with the vehicles they built temporarily moved to parking lots until the chip inventory was refreshed. General Motors, for instance, had some 95,000 unfinished vehicles waiting for parts in late June, with the firm explaining at that point that it wanted all of them to be ready by the end of the year.

The impact of the chip shortage on the automotive industry is, therefore, more than obvious, and right now, most forecasts don’t anticipate a substantial recovery through the end of 2022. This isn’t necessarily surprising given the current geopolitical tensions and the rising costs of materials, but most carmakers did expect the chip crunch to ease off in the last quarter.

GM's Flint assembly plant
Photo: GM
Research conducted by Susquehanna Financial Group, however, comes with both good news and bad news for carmakers.

First and foremost, it’s important to know that the lead times have dropped in July versus the previous month. The lead times represent the number of weeks between the moment when an order for semiconductors is received by the chipmaker and the one when the customer receives it.

However, the drop isn’t necessarily as significant as many hoped it would be. The lead times decreased from 27 weeks in June to 26.9 weeks in July, so in theory, while chips are shipped faster, the difference isn’t exactly substantial.

The good news is the trend seems to indicate a continuous decline in terms of lead times. July was the third consecutive month when a drop was recorded, and of course, everybody expects the whole thing to continue towards the end of the year.

There’s something that carmakers, however, need to continue monitoring: the demand for chips specifically built for the automotive market. This is because the industry trends don’t necessarily match the ones in the auto industry. For instance, while the demand for computers and smartphones is declining in the current quarter (and the number of orders for chips is therefore dropping as well), this has no impact on automotive chips.

GM's Flint assembly plant
Photo: GM
Car manufacturers are using an old design, so chipmakers continue to struggle to fill orders for customers in the automotive market. The lead times for certain chips, such as the ones for power management, increased from 31.3 weeks in June to 32 weeks a month later.

While the chip crunch is very likely to continue this year, there’s hope the global inventory would slightly improve in 2023.

The U.S. CHIPS act is supposed to give a boost to semiconductor manufacturing in the United States, with other countries also planning to offer subsidies to chipmakers that invest in expanded capacity in the region.

In the short term, however, the chip shortage is expected to continue until at least 2024, tech giant Intel says. The automotive industry will be among the most affected sectors, even if the production of chips for the computing and mobile market is eventually aligned with the demand.

In the meantime, chipmakers struggle with other challenges of their own. The rising costs of materials, as well as a shortage of equipment required for the production of chips, mostly as a result of geopolitical tensions in China and Europe, make the long-term manufacturing power impossible to predict, therefore fueling the uncertainty regarding the actual date when the chip shortage could come to an end.
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About the author: Bogdan Popa
Bogdan Popa profile photo

Bogdan keeps an eye on how technology is taking over the car world. His long-term goals are buying an 18-wheeler because he needs more space for his kid’s toys, and convincing Google and Apple that Android Auto and CarPlay deserve at least as much attention as their phones.
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