Chip shortage hits car production | Axon’s Automotive Anorak
Many believe that challenges in life happen in threes, and as if to prove this oft-held superstition, over the past year the world’s motor industry has been forced to cope with a trio of unprecedented and unforeseen demanding conditions.
Firstly, it has had the tackle the tough constraints involuntarily imposed upon it by the global Covid-19 pandemic, with vehicle production and deliveries stopped and sales outlets closed during forced lockdowns and staff illness throughout the world. The rapid shift away from traditional ICE petrol and diesel engines and future developments to electric power, sped-up by the impacts of Covid-19 and some knee-jerk international governmental legislation, has placed enormous additional demands on car makers plans, timings, budgets and engineering resources too.
Now, as if to add insult to injury, just as the world’s automotive sector is beginning to see some positive signs of recovery, a global shortage of semiconductor microchips is blighting the motor industry. These shortages are disrupting vehicle output schedules, causing factory shut downs (as just announced by Jaguar Land Rover for a fortnight, for example), workforce layoffs and increasingly lengthy customer delivery delays.
The supply problem stems from factories shutting when the pandemic struck last year, prompted by forecasts that consumers would reduce their spending. In the event, lockdowns and remote working from home have actually led to an increase in chip demand. Many Chinese semiconductor producers rely heavily on Western technology to make chips, but after the former President Trump ‘trade war’ administration began imposing limits on technology exports to China, companies started stockpiling chip technology, thereby quickly creating scarcity.
Across the globe consumers stocked up on personal computers and other electronics, creating a chip shortage that started a surge in demand for PCs for home-based work and schooling during the Covid-19 pandemic, this soon shifting business models which threatened to snarl up, slow and stop car production around the world.
It’s not just the automotive sector that’s struggling to get enough semiconductors to build new vehicles though, with companies that sell chips to most of the top electronics firms, such as Qualcomm and AMD products, noting a shortage in recent months. Sony even blamed shortage for the delay in getting the PlayStation 5 to market.
All of these devices include plenty of chips – not just the central processor which can cost tens or hundreds of pounds, but also less expensive, smaller chips for controlling the display, managing power, or operating a 5G modem. Apple, for example, reported last year that it didn’t have enough supply of its new iPhones to meet global demand, with the supply of semiconductors already being very tight.
Car makers aren’t competing directly with high-tech companies for the same chip supply, as vehicle chips are usually based on older chip manufacturing technologies and don’t need the bleeding edge, but the shortage isn’t just in the fastest chips, it’s in everything.
Modern cars now include many tiny chips, most of which perform functions such as power management. Cars also use a lot of microcontrollers, which can control traditional automotive tasks like power steering, or are the ‘brain’ at the heart of an infotainment system. Car makers usually use just-in-time production techniques too, which means they can avoid having extra parts in costly storage. This can lead to problems, even if a five pence chip is missing, meaning manufacturers can’t supply a £50,000 car. If the chip that powers the in-car dials or automatic braking are delayed, for example, then so is the rest of the vehicle.
The automotive sector is only now realising that it’s seen as a lower priority than the electronics companies within the semiconductor supplier communities. In 2020, only three per cent of chip supplier TSMC’s sales were from automotive chips, compared to 48 per cent for smartphones as the real volume players.
The tech companies have higher margins, never cut down their orders and have long-term contracts with the suppliers, meaning that now that automotive demand is peaking faster than the OEMs had expected, car makers are struggling to be let back into the supply queue.
Car manufacturers also generally use automotive-grade chips, which are painstakingly ‘qualified’ against binders of industry standards to make sure they are suitably durable and reliable, making it more difficult for the motor industry to alternatively transition its production lines and supply chains elsewhere.
A handful of car companies that had prudently stockpiled chips are now reaping the benefits. Toyota, for example, has said that it doesn’t expect to reduce its rate of production because it had stockpiled four-months’ worth of chips to ride out the shortage, with the firm recently raising its full-year earnings forecast by 54 per cent.
Other car makers around the world are having to adjust their assembly lines due to the semiconductor shortages though, cutting or stopping production and sending assembly line workers home due to the chip supply shortage. In the world’s largest vehicle producing nation, China, this chip shortage has already hit car production by up to 8 per cent in the first two months of 2021, and the supply shortage is not forecast to ease until the third quarter of this year.
These semiconductors are the vital brains behind a growing number of ‘smart’ features found within today’s technology-laden cars, with the on-going chip shortage becoming so serious that it could cause the global production of cars to drop by up to 2.2 million units this year, causing car makers to focus their limited chip supply on more profitable models, such as SUVs and electrified variants that can help reduce their CO2 carbon footprint for the year.
With more gadgets, gizmos and driver/safety aids, modern cars have become far too reliant on microchips and electronic technology. Take the latest-generation new Nissan Qashqai, for example. It has 50 per cent more electronic sensors than its already gadget-heavy predecessor, due to added electronic features such as ADAS (Advanced Driving Systems). Conversely, due to the chip supply problems, Peugeot has just been forced to take the opposite approach, launching its new 308 models with traditional analogue instrumentation, replacing the digital dash panel that was originally planned for the car.
I was reminded of the growing electronic complexity of modern cars recently when chatting to a friend based on his smallholding in rural North Wales. During the Easter break temperatures plummeted to well below freezing overnight, making his battered Ford Ranger reluctant to start one morning. Keen to get moving, he resorted to jumping into his ancient 1964 Citroën 2CV AK van, getting its engine running with a firm swing of the starting handle.
Hand cranking a car to start its motor was the norm for most drivers for the first 50 years or so of motoring, with starting handles lasting for around 90 years on more basic and rustic vehicles such as the 2CV, Land Rover, early Range Rover, Toyota Land Cruiser, Nissan Patrol, Lada Niva, plus most other off-road cars, pick-up trucks and commercial vehicles.
The electric car self-starter didn’t appear until 110 years ago in 1911 when American Charles Kettering patented his self-starter for vehicle engines. Post-war, a crank hole slot in the front bumper or valence to mount a starting handle quickly became a rarity, with the feature all but dead and forgotten by the late 1990s, the 1998 Lada Niva 4x4 being the last ‘regular’ production car to still be equipped with a crank handle, a feature much appreciated by Russian motorists potentially stranded in the sub-zero temperatures of a snowy Siberia with a failed battery. Chips with everything hey? So much for progress…