Volkswagen warns on production as global chip shortage hits car firms

Suban Abdulla
·3-min read
The new Volkswagen ID.6 Crozz car is seen during the 19th Shanghai International Automobile Industry Exhibition in Shanghai on April 19, 2021. (Photo by Hector RETAMAL / AFP) (Photo by HECTOR RETAMAL/AFP via Getty Images)
The shortage is expected to last for some time as it can take up to two years to get semiconductor production factories up and running. Photo: Hector RETAMAL / AFP via Getty

Volkswagen (VOW.DE) is the latest company that has warned on the impact of semiconductor chip shortages on the car industry. 

The German automaker expects the global chip shortage to reduce production of vehicles in its main car brand in the coming months, but output at its electric car division is not expected to be affected. 

Ralf Brandstaetter, CEO of Volkswagen said he thinks the "situation will remain tense."

A fire at a factory operated by automotive chip maker Renesas Electronics (6723.T) and the Texas snowstorms have also hurt factory production, idling output, he added. 

Brandstaetter added the impact from the combination of factors could last for a few months and plans to make up for lost output as far as possible throughout the course of 2021.

Global car firms have been struggling with chip shortages as the COVID pandemic led to increased demand in other markets such as smartphones and other consumer electronics.

The shortage is expected to last for some time as it can take up to two years to get semiconductor production factories up and running. 

Chips are also not easy to make, with advanced semiconductors taking up to six months to produce.

The world's largest chipmaker, Taiwan Semiconductor Manufacturing (TSM) dampened any hopes of the issues letting up soon by saying that the shortage could continue into 2022.

TSM said it plans to invest $100bn (£72.4m) over the next three years to increase capacity at its plants.

READ MORE: The chip shortage bringing car factories to a standstill

It joins a string of car companies that have halted production at car factories due to the computer chip shortage.

WATCH: Global chip shortage wreaks havoc on various industries

Last week, BMW-owned Mini announced it would halt production for six days as it waits for more supplies.

Jaguar Land Rover, the UK’s largest car manufacturer, was plunged into fresh crisis as the shortage caused it to temporarily shut down production at two of its main plants.

In April, Nissan (7201.T) announced that it would furlough around 10% or 800 employees at its UK plant in Sunderland amid the supply chain issues.

The Japanese carmaker has asked affected workers to remain on furlough until the chip shortage lets up and production can be increased.

The company also announced it is planning to halt production at some of its factories in Japan from next month.

Other carmakers have made similar moves. Last month, US car company Ford (F) announced that it will cut car production due to the global chip shortage and said profits could be hit by $1bn.

Renault (RNO.PA) and Honda (HMC) also flagged similar plans, with the latter previously pausing production at its Swindon plant. General Motors (GM) warned that it could face a $2bn profit hit.

The situation has been made worse as car companies are competing with technology companies, who have also experienced delays and shortages for the chips. 

The semiconductors are used by a range of computer companies such as Microsoft (MSFT) and Sony (SONY), the makers of the Xbox and PlayStation games consoles, as well manufacturers like Samsung (005930.KS) which makes phones, TVs and refrigerators.

Samsung’s co-chief executive, Koh Dong-jin, who also heads its mobile business unit, said last month that there is a “serious imbalance” in the pecking order of who is getting the limited supplies of chips.

Last year Apple (AAPL), the world’s biggest buyer of semiconductors, was forced to delay the launch of the much-hyped iPhone 12 by two months due to the shortage.