It appears that the auto sector is past the bottom of the chip shortage. That does not mean that the problems are over, it is expected that this will last until at least 2022. In addition, there is a chance that factories will be temporarily shut down in the near future due to missing chips.
The shortage is the result of the massive cancellation of chip orders by car manufacturers when demand for cars collapsed due to the corona crisis. As demand for new cars recovered faster than expected, automakers were left behind and it turned out that global demand for chips had surged in the meantime.
The chip shortages are very widespread, and makers of consumer electronics and white goods are also affected. They also represent a much larger part of the market. According to accountancy firm KPMG, the car industry accounts for about ten percent of the chip market, but suffers the most damage: about 80 percent of the total lost income (a total of 125 billion dollars) due to the chip shortage.
Bottom reached, chain still through
“The chip shortages in the car industry have reached the bottom”, concludes Albert Jan Swart, sector economist industry at ABN Amro. “The orders still have to go through the supply chain, so it will take a few months before the chips reach manufacturers.”
A Detroit parking lot full of Ford pickup trucks waiting for chips:
Taiwanese chip maker TSMC said this month when it released its quarterly results that it will supply more chips to its automotive customers. “That is one of the most important players in the market”, says Sigrid de Vries, secretary general of the European trade association CLEPA, which represents car suppliers. “We are now seeing the results of what was deployed three to six months ago.” Samsung, another major chip manufacturer, generally expects the situation to improve in the next six months.
“The low point seems to be over”, De Vries also notes. “The situation is no longer deteriorating, but the difficulties are likely to last until 2022 and perhaps beyond.”
Stan Berings, who monitors the automotive sector at accountancy firm PwC, also sees improvement. “You slowly get the impression that the low point is over.” He thinks there was still some room at the chip giant in Taiwan. “Which allowed people to scale up here and there. And there is talk about distributing the ‘pain’ more fairly among different sectors.”
Part of a bigger whole
Berings emphasizes that the car industry is only a small part of the bigger picture. “That means that a small shift in the whole for the automotive sector quickly turns into a big shift.”
The car industry is a relatively small customer for the chip sector, but the economic importance for countries such as the US, France and Germany is enormous.
Swart of ABN Amro thinks that TSMC supplies more to car manufacturers, partly as a result of great political pressure on Taiwan. The US and Germany are urging Taiwan to continue to supply their automakers with chips. “The economic importance for countries like the US, France and Germany is enormous.”
The shortages have recently led to major concerns in the US: the car industry is of great economic importance. For that reason, the White House organized a summit in April with parties from the car sector and chip manufacturers. At the beginning of last week, the US Secretary of Commerce, Gina Raimondo, came with good news. “Automakers are getting a little more of what they need and the situation is getting a little better.”
Gloomy mood in Europe
The mood among European car manufacturers is still gloomy. Volkswagen, one of the world’s largest automakers, warned earlier this month that the deficit will worsen in the coming six months. BMW and Daimler have temporarily halted production this month due to shortages. The CEO of Stellantis, the company behind brands such as Peugeot and Opel, expects the crisis to last until next year with “ease”.
At the beginning of the crisis, we already saw that manufacturers do not treat their suppliers in the same way.
A different sound is heard from the South Korean car manufacturer Hyundai. The company says the worst is over and the situation will get better this quarter (July, August and September).
“At the beginning of the crisis, we already saw that manufacturers do not treat their suppliers in the same way,” explains De Vries of the European trade association. “Everyone has their own way of doing that.”