A Simple Guide to the Car Chip Shortage

A Simple Guide to the Car Chip Shortage

A Simple Guide to the Car Chip Shortage
Reading Time: 5 minutes

You may have heard about the chip shortage affecting the auto industry in recent months. Decades ago, a computer chip shortage—if there even was such a thing as computer chips— would’ve never impacted the auto industry. That’s because vehicles used to be entirely mechanical and analog. Just crank it up and hit the road.

But those days are long gone. In fact, today’s vehicles have more computing power across their systems than the space shuttles that went to the moon in the late 1960s. So, this whole semiconductor shortage has really shaken up the auto industry.

In this article, we’ll discuss everything you need to know about the semiconductor shortage, including how it began, when it’ll end, and what all of this has to do with the auto industry.

But before we get too deep into it, let’s start by taking a look at what semiconductors actually are. Here’s our simple  guide to the car chip shortage.

What are Semiconductors?

Maybe you’ve never heard the word semiconductor before opening this article. But that doesn’t mean you’ve never used one before. Actually, by simply reading this article, you’re using semiconductors! Without getting into the technical nitty-gritty, semiconductors are just another term for computer chips. 

Now that’s a word—well, two words—you’ve likely heard before. Computer chips are the brains behind the electronic devices we use every day. If you’re reading this on your computer or smartphone, you’re using a number of different computer chips at this very moment. 

Basically, semiconductors are small pieces of electronic equipment that control the bigger electronic component or system they’re part of. Made of silicon—not to be confused with silicone—most semiconductors are manufactured in Asia and delivered overseas to wherever they need to go.

But what does that have to do with cars?

We’ll dive deeper into the effect of the chip shortage on cars a little later. For now, let’s look at why there’s a semiconductor shortage in the first place.

Why Is There a Semiconductor Shortage?

Before we go into the underlying cause of the chip shortage, we bet you already have a good idea. As you may have guessed, it’s due to the COVID-19 pandemic. But the specific reasons why the pandemic has led to a semiconductor shortage might surprise you.

With most countries going into lockdown during the pandemic’s early stages, including Canada, people around the world were confined to their homes. Remote work became commonplace, school was offered entirely online, childcare services were shut down, and employees in nearly every industry were furloughed or laid off.

While everyone was ordered to stay home and avoid going out, two things were happening simultaneously that eventually led to a computer chip shortage. First, nobody was going out and spending money. With everything shut down, people were suddenly saving more money than ever before. This led to millions of people with extra money and free time all stuck at home. 

What did we spend time doing during the lockdown? Finding ways to stay busy inside, of course. With our newfound free time and money, we turned to electronics—computers, gaming systems, televisions, work equipment, and more—in unprecedented numbers. Car sales actually exceeded what many thought, and as we know, cars are full of electronics.

As people bought more and more electronic equipment to keep themselves busy, or enable themselves to keep working remotely, more computer chips than ever before were needed. All of that electronic equipment required semiconductors to function. 

When car manufacturers realized customers were willing to keep buying vehicles, they brought workers back to resume production. However, the computer chips were being bought out by other industries. Thus, the semiconductor shortage began.

What is the Impact on the Auto Industry?

Think about your car for a minute. If you imagine the parts of your car, you probably think of the big ones we all know about—such as the engine, brakes, transmission, wheels, and tires. But as cars become more advanced, they require more technology to keep running and to offer us all the modern amenities we expect.

And what do all of these electronic systems require to function? That’s right. Semiconductors! So, as the semiconductor supply chain was affected across the globe, automakers were unable to produce vehicles at the same rate they could before. In some instances, production halted entirely as automakers awaited the arrival of chips.  

Around the world, auto companies have been on the edge of their seats, anxiously waiting for semiconductors to become available again. But when will this happen.

How Long Will the Semiconductor Shortage Last?

Unfortunately, there is no definitive answer as to when the shortage will end. The experts have varying opinions, but it’s difficult to nail down when the shortage will end and everything will return to normal. Here is what some of the big players in the game are saying. 

The Head of Procurement for Volkswagen, Murat Aksel, is hoping we’ve been through the worst of the shortage this summer, and production will return to normal soon. Chuck Robbins, the CEO of Cisco, thinks the shortage will last until the end of October before we turn the corner and return to normalcy. Meanwhile, the CEO of Stellantis, Carlos Tavares, thinks the issue will last deep into 2022 before production and supply return to pre-pandemic levels.

These are just the opinions of three people. Many others believe we’ve been through the worst of it and the semiconductor shortage is on the uptick. Conversely, several others think it’ll last well into 2022. At CarDigest, we think the shortage will continue into 2022, with things beginning to return to normal around the middle of next year.

Making matters worse, the new coronavirus variant threatens more shutdowns around the world. If nations go back into lockdown, there’s no telling when the shortage will end. For the sake of computer chip production—and, more importantly, public health—let’s hope the new variant doesn’t take off like the original virus did.

Which Automakers are Most Affected?

As you can imagine with how technologically advanced modern cars are, and how many electronic systems they have, the semiconductor shortage affects nearly all manufacturers. But, like all things in life, the shortage affected some more than others. Or, at least some automakers reacted more swiftly than others to deal with the shortage.

The most affected automakers include: 

  • Tesla. As the world’s leader in electric vehicle manufacturing, Tesla has been hit hard by the chip shortage. One change they’ve made in the production of their vehicles is to remove the passenger side lumbar support, eliminating the need for those chips.
  • General Motors. To save on semiconductor use, GM has also removed a couple of features from their vehicles, such as the fuel management module and the start-stop fuel-saving features. Additionally, Chevrolet has thousands of Silverado trucks nearing completion and just waiting for computer chips.
  • Ford. Similar to GM (and Chevrolet), Ford has tens of thousands of F-150 trucks that are almost fully built and stored in facilities across the country. These trucks will be finished and added to inventory as soon as the lead times on chips returns to normal.
  • Toyota. We’re including Toyota to show how much less affected it is than other automakers. Indeed, other manufacturers will likely take a page from its playbook moving forward. Over the past decade, Toyota has closely monitored its suppliers to determine which parts it may need to stockpile. As you might have guessed, Toyota has been stockpiling semiconductors, enabling it to maintain production.   

While these are just four big names, automakers around the world have been hindered by this shortage in a similar fashion. It’ll be interesting to see how Toyota’s approach to stockpiling parts will affect other automakers moving forward.

Conclusion

At first glance, a semiconductor shortage might seem like a big issue primarily for electronics companies, such as Samsung or Apple. But with the dependence of today’s cars on electronic systems, the shortage has had a major impact on the auto industry. With chips in short supply, manufacturers have had to find ways to keep producing cars with fewer chips or pause production entirely.

While nobody knows precisely when the shortage will end, we’re hoping that as we head into 2022, production and supply will begin to return to normal, allowing auto manufacturing to resume fully. But don’t worry, because we’ll stay on top of the situation and keep you updated on everything regarding semiconductors and automakers!

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