Semiconductor crisis: why does it hit the automotive market?

Semiconductor crisis: why does it hit the automotive market?

Semiconductor crisis

What do power steering, brake sensor, parking cameras, infotainment systems and digital speedometer have in common? Semiconductors, or rather all those chips needed to drive and control a certain component of your modern car. In the last period we have reported various news about it and it seems that the situation will remain unchanged for the next few months, with some forecasts that assume a similar trend also for a good part of 2022.

The semiconductor crisis is one of the main reasons why many new cars are no longer available and will probably return after the summer. The situation has been raging for months and for the automotive market it represents yet another and very hard blow. The amount of chips inserted into a single model is almost unimaginable: it goes from a few dozen, for the less technological cars, to several hundred, for the more futuristic ones.

The automotive market represents, globally, a very small percentage and even if it were to recover quickly, not all manufacturers could benefit from the return to production. While the big brands might be able to assert themselves, like Stellantis or Volkswagen, it is the smaller fish that worry that they may fail to gain any market share.

The scale of the problem is assuming probably unforeseen dimensions: Ford has revealed that it will produce 1.1 million fewer cars this year due to the shortage of semiconductors, and some manufacturers have already announced they intend to remove some specific accessories that require a massive use of chips. To avoid a complete blockade of all production lines, some manufacturers have chosen to dedicate the few semiconductors available to certain models, such as the most requested or the most profitable (such as SUVs, compact crossovers and so on). > While on the one hand there is Europe that asks and insists on the production and sale of green cars, on the other a report by Autocar highlights how hybrids and electric cars require a dramatically higher amount of chips than their counterparts with internal combustion engines. . To give you a clearer measure, starting with the model, a hybrid car would require up to 10 times more chips than a petrol model.

High market demand combined with supply so narrow it could lead to discounts on the new limited one and therefore only the injection of new incentives could favor the sale of green cars. Some manufacturers have asked Europe to develop an "internal" system capable of limiting dependence on Asia; the solution would be, unfortunately, building a new and updated production line takes up to a maximum of 40 weeks, just under a year.

Semiconductor shortage forces more layoffs as the U.S. gets closer to a funding boost

Some 1,600 jobs are being cut at a Jeep Cherokee factory in northern Illinois as automakers continue being plagued by the global shortage of semiconductors. Image- Elishur19, CC SA 4.0.

The global shortage of semiconductor processing chips continues to impact automotive and technology industries, creating more layoffs as companies advance planned summer shutdowns.

The latest job cuts are with a Jeep Cherokee factory in northern Illinois. The U.S. arm of Stellantis, formerly known as Fiat Chrysler, said Friday it was cutting one of the two work shifts at its Belvidere Assembly Plant as of July 26, resulting in the possible layoff of about 1,641 workers, company spokeswoman Jodi Tinson said, per the Associated Press.

Last month, Autocar reported that a number of automakers were working to overhaul their components supply-chains as a workaround to ensure continued production. However, analysis company IHS Markit said at the time that the shortage could cut global production by nearly 700,000 vehicles year-on-year, although the final figure could be even higher.

There may be a slight glimmer of light toward ending the unprecedented global microchip shortage, although it won’t happen overnight. The U.S. Senate Committee on Commerce, Science, and Transportation voted to approve the $110 billion Endless Frontier Act on Thursday, according to Reuters.

The Endless Frontier act would authorize most of the money, $100 billion, over five years to invest in basic and advanced research, commercialization, and education and training programs in key technology areas, including artificial intelligence, semiconductors, quantum computing, advanced communications, biotechnology and advanced energy.

But how does this tie in with automotive companies laying off workers due to a global semiconductor chip shortage? Basically, we could blame the coronavirus pandemic, and that would be partly right. But it goes a little deeper than that.

Looking back to the beginning of 2020 and the start of the global pandemic, many businesses, including automakers, closed their production lines as countries and cities went into lockdown as the virus raged. This shutdown also caused semiconductor makers to switch their factories from making the chips to producing more profitable consumer-electronics processors.

The South China Morning Post would have us look at the bigger picture regarding semiconductor chips. China’s 14th five-year plan calls for basic research spending to reach 8 percent of total R&D expenditures, without specifying a specific amount of money.

China’s investment in basic research was just 0.12 percent of GDP in 2018, according to figures from the Organisation for Economic Cooperation and Development (OECD), compared with 0.47 percent for the US and Japan’s 0.41 percent.

However, according to Cameron Johnson, an adjunct faculty instructor at New York University and a partner at Tidal Wave Solutions, the U.S. is still lagging behind China when it comes to policy commitments supporting technological development.

“The Endless Frontier Act is trying to stimulate both US public and private entities in developing, enhancing, and accelerating new technologies and processes to move into the 21st century, and specifically, to compete with China,” Johnson said.

For the U.S. – the Endless Frontier Act is part and parcel of a major shift, meaning “a state-led science and technology research mechanism may once again lead core technology industry development”, said Zhou Zipeng, an analyst at a think tank affiliated with the state-run investment bank China International Capital Corp, in a note this week.

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