Chipmakers focus on more lucrative business making life difficult for Automakers
Automakers are facing a persistent chip shortage, the crisis is making life difficult for automakers right now. Automakers rely heavily on the semiconductor industry to supply them with the raw materials they need to be able to build driver assistance systems, navigation control components and emissions systems, among others.
The semiconductor crunch has crippled the auto sector leaving the carmakers with a simple choice to pay up, stock up or risks getting stuck on the sidelines as the chipmakers are now focusing on ventures that have the potential to make money.
The global pandemic is partly to blame for the shortage. When auto manufacturing was suspended in 2020 due to COVID-19, NPR says that the â€œglobal semiconductor industry planned accordingly, and arranged to sell more computer chips to other buyers.â€ When people started buying more new cars, plants resumed normal operations. As a result, demand for chips outpaced supply.
At the same time, demand for chips from the consumer electronics sector was also increasing. â€œEvery school district in the country had to buy new computers,â€ the Center for Automotive Researchâ€™s Kristin Dziczek told NPR. â€œAnd the consumer electronics industry, as I understand it, pays a little better than the auto industry for these chips.â€
Chipmakers, meanwhile, saw surging demand for semiconductors used to enable remote healthcare, work-at-home, and virtual learning, which were needed during the pandemic.
The chip market was swept clean by the makers of consumer electronics such as smartphones leaving the automakers with a limited supply of chips. So as to which car manufacturers including Volkswagen, Ford and General Motors have to cut output.
The semiconductor shortage is over $800 that is far down the supply chain, causing a ripple effect through the entire network. Automakers are expected to lose billions of dollars in earning this year.
â€œThe car sector has been used to the fact that the whole supply chain is centred around cars,â€ said McKinsey partner Ondrej Burkacky. â€œWhat has been overlooked is that semiconductor makers actually do have an alternative.â€
In Germany, Volkswagen had given a timely warning to the suppliers last april, when the production had idled due to the pandemic that it had expected the demand to recover strongly in the second half of the year.
â€œLast year we had to furlough staff and bear the cost of carrying idle capacity,â€ said a source at one European semiconductor maker, who spoke on condition of anonymity.
â€œIf the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?â€