The global semiconductor shortage has hit the automotive industry hard, driven by supply chain disruptions, rising demand for chips in advanced vehicles, and a lack of consensus on when it will end.
FREMONT, CA: In the world of automobiles, the challenge has taken centre stage as the global shortage of semiconductor components. This crisis has been reflected in the automotive sector, causing a sharp decline in production schedules and a substantial hit to revenues. It is a challenge that has shaken the foundations of the automotive landscape.
Despite pleas for calm from industry leaders, the semiconductor shortage has emerged as an obstacle impacting businesses across multiple sectors. While consumer electronics, such as smartphones, have historically been the primary consumers of microchips, it's crucial to recognise that the automotive industry is not immune to its far-reaching consequences.
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The primary cause of this problem can be traced back to the worldwide supply chain, which has suffered from disruptions affecting a range of industries. These disruptions have played a major role in worsening the shortage of semiconductors, as each issue has compounded the other. For instance, delays in shipping have become a frequent occurrence, impacting the delivery of crucial raw materials and essential components to semiconductor companies while also impeding the transport of finished products from their facilities.
Similar labour-related challenges in the shipping sector have disrupted schedules and led to the closure of major shipping hubs, compounding the delays. These factors have created a ripple effect, causing persistent delays within the shipping industry and amplifying the broader supply chain issues witnessed in recent times.
Even when manufacturing capacity returns to relatively normal levels, the challenge of securing raw materials for semiconductor production persists. Some countries dominate the production of crucial materials like silicon, germanium, and gallium arsenide—the three most vital ingredients for semiconductors. The mining, processing, and production industries associated with these materials have encountered the same labour and supply challenges.
Perhaps most urgently, the shortage of neon, a critical element in semiconductor production, is becoming increasingly problematic. This scarcity poses a significant challenge to the semiconductor manufacturing process, as neon plays an indispensable role. Its shortage adds another layer of complexity to the semiconductor industry's struggles, contributing to the ongoing crisis.
In recent history, both the automotive and semiconductor industries have embraced lean manufacturing, a strategy that involves producing supplies to match demand rather than creating surpluses. While this approach optimises efficiency, it leaves little room for flexibility when crises like the semiconductor shortage hit. Manufacturers and automakers found themselves without surplus supplies, making the shortage's impact felt almost immediately. While supply chain issues are at the forefront of this narrative, it's essential to recognise that demand also plays a significant role. Surprisingly, shipments of semiconductor units for automobiles have increased in recent years.
Global semiconductor unit shipments reached a record high. Despite this surge in chip production, the auto industry still grappled with a shortage, pointing to factors beyond chip production numbers contributing to the crisis. Rising demand is a major factor in the global chip shortage. As modern passenger vehicles become increasingly technologically advanced, they rely on more and more microchips. Estimates suggest that the average modern car contains between 1,400 and 1,500 semiconductor chips, with some vehicles boasting as many as 3,000. These chips control various aspects, from emissions systems to driver-assist systems, making them indispensable to vehicle production.
The integration of semiconductors has allowed automakers to replace manual systems with electronically controlled ones, improving efficiency and reducing reliance on oil while curbing carbon emissions. Semiconductors have led to vital innovations in driver safety technology, enabling electronically controlled emergency braking, airbag deployment, blind spot detection, collision avoidance, and other systems. Driver assistance technology, too, owes its existence to semiconductor chips. Rear backup cameras, for instance, require these chips to communicate with onboard displays. Features like adaptive cruise control, navigation systems, and infotainment systems all rely on semiconductors.
Furthermore, the automotive industry's shift toward electric vehicles (EVs) is gaining significant momentum. While semiconductors are crucial for all car manufacturing, their role becomes even more vital in EVs, which are rapidly expanding their market presence. Semiconductors control critical components like the powertrain and battery in EVs, as well as various functions that they also perform in traditional gasoline-powered vehicles.
EVs require a higher number of semiconductors compared to their conventional counterparts. Even a small increase in the average number of semiconductors used in each EV, combined with the continued growth of both the EV and automobile markets, has the potential to exert substantial pressure on the semiconductor supply chain. This increases the urgent need for effective solutions to address the semiconductor shortage and support the EV revolution.
The shortage of semiconductors has had a profound impact on the car industry, revealing a complex tangle of problems like disrupted supply chains, increased demand, and the critical role of semiconductors in today's vehicles. Although it is known why this shortage happened and what consequences it brought, it's hard to predict when it will get better. This uncertainty keeps car makers and chip manufacturers on their toes, needing to adjust and prepare for any outcome. The automotive industry can overcome the challenges and emerge stronger through innovation and collaboration. It also offers opportunities for a revitalised and forward-looking car industry.
