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How the Semiconductor Chip Shortage Impacting the Automotive Industry Across the USA

50 States Auto Parts > Blog > General Auto Motors > How the Semiconductor Chip Shortage Impacting the Automotive Industry Across the USA
  • February 7, 2023
  • Davis
  • General Auto Motors
  • 0

Semi Conductor Chips Shortage in Automobile Industry Across the USA

Semiconductor Chips or Semiconductor Operated Devices became necessity of our daily lives. Consumer electronics such as mobile phones, laptop computers, telecommunications, 5G, cloud computing infrastructure, and automobiles are examples of semiconductor applications. Especially in automobiles, semi-conductors used to control critical functions such as sensing, safety features, power management, displays, and vehicle control. The traffic of hybrid & electric vehicles (EVs) increasing day-by-day, which further escalating demand for semi-conductor chips.

Semiconductor chips gaining more importance in modern vehicles, only because various high-end models require these chips, the global shortage of these chips has impacted the production of almost all car manufacturers worldwide. In this article we are discussing everything about “Semi-Conductor’s in Automobile Industry and its Shortage”.

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What are Semi-Conductors?

Semiconductors are materials with conductivity intermediate between conductors (Metals) and nonconductors or insulators (Non-metals or Most Ceramics). Small amounts of impurities are added to pure semiconductors in a process known as doping, causing large changes in the material’s conductivity.

Semiconductor Chips in Auto-Mobile Industry:

Semiconductor chips perform the same function of semiconductors. Bloomberg study stated that these are capable of controlling everything from starting the car to stop your car. The touchscreen in a vehicle is essentially a computer, and this is one area where semiconductor chips play an important role. According to Nvidia, chips also control functions in other parts of cars. Chips, for example, are used in safety features. Automatic emergency braking systems, GPS, backup cameras, and even airbag deployment systems are among the features available.

Continuing, your car’s touchscreen enabled by chips, the car’s connectivity features, and even have chips in their engines. It is also reported that these chips can help in improving your engines efficiency & emissions levels. Compared to fueled vehicles, electric vehicles needs more number of chips. The auto industry has been forced to cut production and delivery targets due to a supply crunch and chip shortage, which has resulted in a number of profit warnings.

NanoQuarz Research investigates how the current chip shortage is affecting automakers, the “perfect storm” that is causing it, and what the path forward might look like for the auto and auto parts industries in this supply chain spotlight.

Global Disruption in Semiconductor Chip Supply Chain:

Simply put, the current chip shortage is the result of high demand and insufficient supply. This dates back to the COVID-19 lockdowns in the second quarter of 2020, when demand for work-from-home technology skyrocketed and automakers found themselves competing for semiconductor capacity in Asian foundries.

Prolong lockdowns during Covid-19, changed the demand pattern, this over surpassed workforce. These bottlenecks make it difficult for automotive manufacturers and businesses to keep vehicles and parts in stock. As a result, consumers are waiting months for OEM and aftermarket parts.

Adding to this situation, during COVID-19 global trade slowed down. This had a negative impact on downstream operations in South Asia, causing additional bottlenecks in the supply chain. Malaysia, in particular, performs many “back-end” operations such as chip packaging and testing, which are more labor intensive than wafer fabrication processes and thus more susceptible to public health measures.

Car companies cancelled orders at the start of the pandemic, but when production resumed near the end of 2020, there was no semiconductor supply. This was exacerbated by rising demand, particularly at the higher end of the auto market, as low interest rates aided affordability. While the COVID-19 pandemic was the initial impetus for the chip shortage, structural factors also played a role. The automotive industry is evolving, with a focus on automation and electric vehicles. These necessitate even more chips, putting additional strain on an already overburdened industry.

USA’s Response to Semiconductor Chip Shortage:

It’s ironic that just as US lawmakers finally broke a year-long impasse on a bill providing unprecedented subsidies for semiconductor manufacturing, evidence suggests that demand for chips is softening. Part of the rationale for that legislation was to address a severe global shortage of chips, which had played a significant role in the initial wave of inflation last year. The automobile industry, in particular, was running out of semiconductors required for modern vehicles. Because supply was constrained, prices for both new and used cars skyrocketed.

Impact on the Automobile Industry:

Till date, 2022 has been marked by numerous production disruptions. In addition to the existing shortages of semiconductors, the Russia-Ukraine conflict and COVID-19 outbreaks in China have impacted global supply chains and auto production. The United States market, like other regions, has been characterized by robust pricing power across OEMs. Low inventory levels, strong underlying demand, and tight supply of semiconductors due to strained supply chains have all contributed to this.

The seasonally adjusted annual rate (SAAR) for light vehicle sales in the United States in June 2022 was 13.22 million, up 3% month over month but down 14% year over year, reflecting the industry’s difficulties. Volumes in the industry fell for the 11th consecutive month, falling 12% year on year. Volumes, on the other hand, were up 2.6% month on month. Incentives for demand have fallen to their lowest level since January 2013. This indicates that consumer demand is high in the auto end market, as retailers do not need to offer cash incentives to entice customers.

Boost to Homegrown Chip Industries:

Domestic manufacturers in USA, have a small market share of vehicle regulation chips. Domestic semiconductor manufacturers demonstrate their own strengths and opportunities, which are accompanied by three factors: chip scarcity, localization substitution, and the popularity of new energy intelligent networked vehicles. This is primarily demonstrated by:

  • Addressing Demand Driven Market: Market demand and growth are surging. Previously, there was far less demand for chips in traditional fuel vehicles than there is now for smart networked electric vehicles.
  • Entering Supply Chain: Domestic semiconductor manufacturers can enter the automotive supply chain system. They have the ability to communicate with vehicle manufacturers prior to being occupied by international manufacturers, which is extremely rare.
  • Capital Investment: Human talent and capital accumulation directly promote the rapid development of domestic chip manufacturers. An opportunity, on the other hand, is a wild card.
  • Domestic Boost: For domestic chip manufacturers, the most important thing is to cultivate internal strengths and improve products. The fundamental approach is to produce chips that are comparable to those produced by international manufacturers.

What to do in these Testing Times?

Semiconductors are used in modern automobiles to perform every activity in your vehicle. As hybrid and electric vehicles become more common on our roads these days, the use of semiconductors in automobiles is expected to grow even more in coming days. Furthermore, semiconductors in the form of power devices and solar cells are building the critical charging infrastructure required to make electric vehicles a viable option.

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