Car industry could take six months to recover from chip shortage

James Titcomb
·2-min read
GM factory - AP
GM factory - AP

Carmakers have warned that the global microchip shortage that has brought automotive factories to a halt could continue to affect production for another six months as they called on the US government to step in.

The Alliance for Auto Innovation, an industry group that represents American car manufacturers, told the White House in a filing that the ongoing shortage could mean 1.3m fewer cars being made in the US than last year.

That would amount to around 10pc of the 12.9m vehicles produced in North America last year, according to industry figures.

A global shortage of chips that feature in cars’ entertainment units and power supplies, often only costing a few dollars, has shut down or slowed production lines around the world. Vehicle manufacturers cancelled orders in the early months of the pandemic last year, and when demand unexpectedly rebounded, struggled to secure enough supply as chipmakers had turned to areas like smartphones and games consoles, or were hit by their own production delays.

Coronavirus-related production issues, a drought in the chipmaking hub of Taiwan, and the recent Suez Canal blockage have also contributed to the shortfall, while the rise of electric vehicles, which require greater numbers of microchips, has squeezed supply.

“The current semiconductor supply chain crisis has certainly exposed overall capacity limits in the semiconductor sector and revealed significant risks in the current automotive semiconductor supply chain,” John Bozzella, the Alliance for Auto Innovation’s chief executive.

While he called for further investment in US manufacturing to combat increasing concentration in Asia, he said that in the short term, chipmakers could be incentivised to reassign production with tax breaks.

Joe Biden has said he wants to spend up to $37bn (£27bn) to support manufacturing in the US, where chip production has fallen behind Taiwan in recent years amid struggles at Intel, America’s biggest chipmaker. Intel last month pledged to spend $20bn opening two new factories in the coming years.

Mr Bozzella called on the US to require chipmakers to assign a particular percentage of their production to the car industry to prevent other areas such as electronics dominating supply.

Carmakers first started to be hit with bottlenecks at the end of last year, leading to a shortfall of around 1m vehicles in the first quarter of 2021. However, a lack of supply continues to hit production. Last week, Ford said it would cut output at six assembly plants in North America, with some remaining closed for up to three weeks.

The squeeze has recently been exacerbated by a fire at a factory in Japan owned by the chipmaker Renesas, which could take up to four months to fully recover from.