The automotive industry has nothing to celebrate recently. First there was a pandemic, now the semiconductor crisis hit manufacturers. Factories are again curtailing or suspending production, and customers will have to wait longer for cars. However, the problem with chips is bigger, and manufacturers of electronic devices are concerned about it.
–
It was supposed to be one of the most important automotive events of next year. However, it is already known that it is scheduled for mid-February fairs in Geneva will not take place. The reason for canceling the event is the same as in 2020 and 2021 – a pandemic and related travel restrictions for journalists and motoring fans. This time, however, another thread was noticed. “The semiconductor shortage has presented car manufacturers with new challenges that they must address first,” the press release said.
–
Semiconductor circuits and chips are important elements of a modern car packed with electronics. Their lack means that new cars cannot hit the market.
–
Suspended or limited car production
A few days ago Skoda announcedthat, due to the lack of semiconductors, it must significantly reduce or even stop the production of cars in Czech factories from Monday 18 October. This situation may last until the end of the year. Meanwhile, according to the information provided by the concern to the media, there are “a significant number of incomplete cars waiting for customers on the squares”.
–
Skoda is no exception. Opel stopped production at the plant in Eisenach in Thuringia. Problems also affected Volkswagen and Fiat, Ford, Renault, Toyota and Volvo.
–
According to the consulting company AlixPartners, due to problems with the supply of components, automotive companies will not produce 7.7 million cars this year. In turn, IHS Markit reduced its forecasts of global car production in 2021 by about 5 million units.
–
New car sales drop
The effect of the crisis can be seen in showrooms. According to the Samar Institute, in September the market of new passenger cars and light commercial vehicles recorded a decrease in the number of registrations by 11%. compared to the corresponding month of 2020. “This is the third consecutive (and fourth this year) decline in sales” – noted in the commentary.
–
In September, we should see an increase in purchases after summer holidays and holidays, when the demand for cars is lower. This year, however, car sales were lower in September than in July or August. According to Samar’s experts, it is precisely the lack of semiconductors that is to blame.
–
– Production processes are extended by several months. It’s not that cars don’t produce at all, it’s just that it’s just slower. The size of the lag in individual brands also varies. Until recently, there were also brands for which cars were available, but according to my information, this is also a thing of the past – comments Paweł Tuzinek, president of the Association of Car Dealers, in an interview with TVN24 Biznes.
–
As he adds, phenomena characteristic of a significant reduction in supply, i.e. the number of items available on the market, are currently observed. – We have information from showrooms that customers can bid for vehicles at a higher price – says Tuzinek.
–
Crisis on the semiconductor market – causes
Where do the semiconductor problems come from? There are several reasons that overlap at the same time. – The primary source of the largest supply crisis in this market for decades is the strong increase in demand from the electronics industry, which was one of the largest beneficiaries of the pandemic, due to the growing demand for remote devices – explains Krzysztof Mrówczyński, manager of the Sector Analysis Team from the Macroeconomic Analysis Department at Bank Pekao SA.
–
Initially, the problem was hardly felt as sectors hit particularly hard by the coronavirus, such as the automotive industry, were limiting orders. However, when demand recovered, there was a much longer queue for chips than before the pandemic.
–
– In addition, the supply problems of the industry were aggravated by unfavorable, one-off phenomena such as the largest drought in Taiwan in 50 years (semiconductor production is highly hydro-intensive), and even fires or power failures in some factories – says Mrówczyński and adds: – The current disruptions in international transport, which with the strong geographical concentration of semiconductor production (several large concerns from Asian countries – especially the Taiwanese TSMC and Korean Samsung) have a growing position in it, resulting in a significant extension of the waiting time for their deliveries.
–
As a result, ordering parties have to wait several months, sometimes a year, for the delivery of appropriate components.
–
Smartphones and consoles
Because the crisis, although it has affected the automotive industry in a special way, is a much wider problem than car production.
–
– The recipients of semiconductors are primarily technological industries – especially the electronics industry (including primarily IT and telecommunications equipment manufacturers, and to a lesser extent industrial electronics suppliers), manufacturers of electrical devices (including RTV equipment, monitors), as well as the industry of other transport equipment (especially in the field of aviation and “armaments”). All these industries are currently among those reporting the greatest problems with the supply of necessary raw materials and materials – explains Mrówczyński.
–
As Bloomberg recently announced, it is precisely because of the problems with semiconductors that Apple has to cut its production forecasts for the latest iPhone 13 by 10 million units from 90 million announced for this year.
–
Apple is one of the world’s largest chip buyers and is setting the rhythm of the electronics supply chain. But even with such prominence in business, the technology giant grapples with the same supply disruptions that are wreaking havoc around the world.
–
Video game console production has also been hit by the global chip shortage, which has hit Sony, Microsoft and Nintendo. Recently, the head of Xbox (Microsoft) Phil Spencer announced that problems with the availability of consoles will continue in 2022.
–
In July, Sony Interactive Entertainment CEO Jim Ryan told Reuters it would be “some time” before the company could meet demand for PlayStation 5, admitting that the chip shortage “is definitely a challenge we all face.”
–
Production delays, rising prices
The effects of the crisis on the conductors market are two-fold – greater or lesser production delays, but also rising prices, pushed up by semiconductor manufacturers.
–
– Lack of products with increasing demand is, of course, an additional inflationary factor – admits Mrówczyński.
–
– An example is the prices of telecommunications equipment, the dynamics of which in recent months has been at levels rather unseen throughout the past decade. Including services, an average of 4 to 7 percent, year on year – he adds.
–
According to Paweł Tuzink, it is the issue of semiconductor prices that currently plays a key role. – Car manufacturers decided that they simply cannot afford them at the moment. However, they may have to dig deeper into their pockets, he admits.
–
How long will the crisis last?
Especially since the crisis may take time. According to experts, if it was to end before Christmas, it would be more in 2022 than in 2021.
–
– Currently, in the context of the improvement of the situation, we are talking about mid-2022, but I believe that it is rather a safety buffer offered by manufacturers – says the head of the Association of Car Dealers.
–
– Originally, the tensions were expected to calm down at the end of this year, but it is already known that they may even extend into the second half of 2022 – Krzysztof Mrówczyński also admits.
–
– The largest producers (TSMC and Samsung) have already started investing in the development of production capacity, but their effects will only be visible in some time. With high supply rigidity, further development of the situation will depend primarily on the condition of global demand in the coming months / quarters. If it remains strong, we will probably see the end of the semiconductor supply crisis only in 2023, he emphasizes.
–
New factories and the chip directive
Because building new factories seems to be the best answer. There is also talk of the need to “shorten the supply chain”, that is, to put it simply, to reduce dependence on production in the Far East.
–
“It is unacceptable that so many computer chips are made in Asia,” Intel director Pat Gelsinger said in March. At the time, Intel announced that it would invest $ 20 billion in two new manufacturing plants in the US state of Arizona, in addition to significantly expanding the existing Irish factory in County Kildare.
–
Half a year later, Intel announced that it would spend up to EUR 80 billion within a decade to increase chip manufacturing capacity in Europe. Among the possible locations for new factories, Poland is mentioned, along with France and Germany.
–
Brussels is also aware of the problems, as it wants to encourage companies to locate their production on the Old Continent. In mid-September, the European Commission announced plans for a new chip manufacturing “ecosystem” to keep the European Union competitive and self-sufficient.
–
– We will present a new European directive on chips. This will ensure our security of supply and develop new markets for breakthrough European technology, said Commission President Ursula von der Leyen in a speech to the European Parliament.
–
Industry Commissioner Thierry Breton emphasizes that chips are more than just key components for car makers, smartphone makers and video players.
–
“The race for the most advanced chips is a race for technological and industrial leadership,” he wrote on his blog.
–
Europe cannot be left behind because the United States last year announced the CHIPS for America law, which aims to increase their ability to compete with Chinese technology.
–
photo-source">Main photo source: Shutterstock
—
