As the demand for electric cars continues to rise (more electric cars were registered in 2021 than in the previous five years combined, according to the Society of Motor Manufacturers and Traders), the need for microchips and semiconductors increases. Unfortunately, the semiconductor shortage that has been going on since the beginning of 2020 still remains and continues to affect the electric vehicle industry.
Causes of the Continuing Shortage
The pandemic takes part of the blame for the continuing microchip shortage, with many factories, ports, and industries facing closures and labor shortages, made worse from the increased electronic demand with stay-at-home and work-from-home measures. Specific to the electric car industry, the increased cell phone and electronic chip demand forced manufacturers to allocate their limited semiconductor supply to models with the higher profit margin, the cell phone.
The limited number of microchip manufacturers has also added to the continuing shortage, with Asia-based TMSC and Samsung controlling over 80 percent of the market. Not only does this over-concentrate the market, but it also extends the lead time on a semiconductor. The lead time–the time between when someone orders a product and when it ships–increased to 25.8 weeks in December 2021, six days longer than the month before.
Another reason for the continuing microchip shortage is the massive demand for electric vehicles. Not only have electric vehicles increased in sales and popularity, further seen from the plethora of Super Bowl LVI commercials, but each vehicle requires many chips. To put it into perspective, a Ford Focus uses roughly 300 semiconductor chips, whereas the electric Mach-e utilizes almost 3,000 semiconductor chips. In short, semiconductor manufacturers can not keep up with the electric vehicle demand for chips.
As a result of the continuing shortage, electric vehicle companies have had to make vital changes or closures. In terms of changes, in February 2022 Tesla decided to remove one of the two electronic control units included in the steering racks of their Model 3 and Model Y cars to meet fourth-quarter sales goals. This decision was in light of the shortage and has already affected tens of thousands of vehicles for customers in China, Australia, the United Kingdom, Germany, and other parts of Europe. Tesla did not notify customers of this removal because the part is redundant and is not needed for the level 2 driver-assistance feature.
As for closures, in February 2022 Ford announced the temporary halting or altering of production at four North American production plants as a result of the microchip shortage. This affects the production of the Ford Bronco and Explorer SUVs; the Ford F-150 and Ranger pickups; the Ford Mustang Mach-E electric crossover; and the Lincoln Aviator SUV at plants in Michigan, Illinois, Missouri, and Mexico.
Despite the closure, Ford remains optimistic. Ford executives told investors that global production volumes will increase by 10 to 15 percent overall in 2022. CEO Jim Farley also stated in the 2022 annual report that Ford plans to double its electric vehicle manufacturing capacity by 2023 with the intention of electric vehicles representing at least 40 percent of its products by 2030.
Possible Solutions
Regardless of the factors or outcomes, the semiconductor shortage will continue to affect the electric vehicle industry. As a result of supply chain and geographical issues causing a great deal of the shortage, there has been a greater push to get more semiconductor factories in the U.S.
For example, Ford recently announced a partnership with GlobalFoundries to enhance domestic chip manufacturing and GM announced a similar partnership with Wolfspeed. Additionally, the Biden administration has finalized a “Chips Bill” that is awaiting congressional approval. If approved, $50 billion of funding would subsidize chip manufacturing, research, and development.
However, with 70 to 80 percent of the current battery components of semiconductors being processed in China, the U.S. battery production must ramp up in order to have a fighting chance of survival in the microchip and electric vehicle production industry.
In the past few months, manufacturers have been forced to increase the price of their electric vehicles due to a global chip shortage. Unfortunately, it's not just electric vehicles that have been affected but even smartphones, laptops, and gasoline vehicles.
The lack of sufficient semiconductors caused widespread production cuts around the globe. Worldwide, carmakers are estimated to cut a total of 19.6 million vehicles out of their production schedules between 2021 and 2023.
BMW (BMWYY) and Mercedes-Benz (DDAIF) currently report no significant supply issues related to automotive chips. Volvo says it's back to full supply. Nissan (NSANY) sees a recovery in the next few months. Hyundai and Volkswagen (VWAGY) say chip shortages are easing.
BMW, Mercedes-Benz, Renault and Nissan have not been affected so far this year by the shortage, according to a report this month from Bank of America Global Research analysts, citing data from S&P Global. But the positive outlook has not spread to every automaker.
All new cars are built with a plethora of microchips onboard to control everything from window motors to navigation systems, and the auto manufacturing industry has been hard-hit as chip shortages have caused production slowdowns. For consumers hungry for new cars, that means fewer are available.
According to estimates, the average modern car has between 1,400 and 1,500 semiconductor chips. Some cars can have as many as 3,000 chips. That's a lot of chips! You could say that modern cars are like giant computers on wheels.
The global microchip shortage continues to impact the automobile supply chain and is causing the price of new cars to increase as inventory dwindles. [Justin Sullivan | Getty Images] Both new and used prices have stopped skyrocketing.
Why Are Car Prices Rising? Car prices rose dramatically in 2022 as a result of global supply chain issues, with a persistent chip shortage holding up production in the auto industry. While semiconductor supply is expected to improve in 2023, new car prices will likely remain elevated due to inflationary input costs.
A report from AutoForecast Solutions showed that Ford was the hardest hit by the global chip shortage, pulling more than 230,000 vehicles from its production schedule. Chevrolet was the second hardest hit U.S. automaker with a production cut of 140,800 vehicles. Jeep followed with about 138,700 units.
Here are some other noteworthy examples of how the chip shortage has impacted certain cars since the problems began: Some Genesis models lost driver-assist safety features. Ford began selling driveable cars without chips. Tesla raised prices in March 2022 by up to $10,000.
First, supply chain and labor constraints early in the pandemic forced automakers to cut new-vehicle production; then the global microchip shortage further exacerbated the situation. Demand quickly outpaced supply, creating a “new normal” of empty dealer lots and escalating new-car prices.
Ford Motor said it lost $3.1 billion over the past three months and its revenue slid, in part because of a shortage of semiconductor chips which limited the number of pickups and SUVs available for sale in North America, but also as a result of its heavy investment in electric-vehicle startup Rivian.
While the COVID-19 pandemic was the initial catalyst for the chip shortage, structural factors were also part of the picture. Fundamentally, the auto industry is changing, with a major shift toward automation and electric vehicles. These require yet more chips, causing further strain on an already stretched industry.
Unable to secure all the microprocessors needed for today's cars, the auto industry closed some plants and wound up making about 8 million fewer vehicles last year than initially anticipated, driving up prices and fueling inflation, according to U.S. Commerce Secretary Gina Raimondo.
Supply chain disruption has grown to a top threat across industries. The chip shortage has brought car production to a standstill, delayed consumer electronics product launches, and impacted companies' ability to onboard new employees.
A lack of available semiconductors actually caused GM to lose its top sales position to Toyota in 2021. The company also had to cut features from some vehicles, such as wireless chargers and HD radios, due to supply issues.
The Russia-Ukraine war has the potential to exacerbate semiconductor supply chain issues and the chip shortage that has impacted the industry for the past two years. The most immediate risk is to the supply of specific raw materials used in semiconductor manufacturing such as neon and palladium.
Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall. Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries.
The chip shortage is still a significant factor for the industry going into 2022. For the full year, Ford expects improvement in the chip situation and plans to ship 10% to 15% more cars than in 2021. In the U.S., that would work out to roughly 2.1 million or 2.2 million vehicles.
Introduction: My name is Van Hayes, I am a thankful, friendly, smiling, calm, powerful, fine, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
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