Auto Industry May Lose $61bn In 2021 As Chip Shortage Hits The Tech World

Auto Industry May Lose $61bn In 2021 As Chip Shortage Hits The Tech World

As the world of technology grapples with the shortage of semiconductor chips, the auto industry is beginning to bear more of the brunt. The impact is escalating, touching more sectors as the pandemic lingers, automakers are putting out statements indicating that the impact may be worse than thought.

Nio, Tesla’s electric vehicle Chinese rival said on Friday it would halt production for five working days at its Hefei plant, owing to scarcity of chips.

The electric automaker is not alone; the pandemic ushered in an epidemic of chip shortage that the tech industry is  battling to contain.

“The first hints of trouble emerged in the spring of 2020. The world was in the early throes of a mysterious pandemic, which first obliterated demand then super-charged internet and mobile computing when economies regained their footing. That about-face – in a span of months – laid the seeds for potentially the most serious shortage in years of the semiconductors that lie at the heart of everything from smartphones to cars and TVs,” Bloomberg noted in a report.

PC makers were among the first to raise the alarm in the spring of 2020, but watched helplessly as the situation degenerated. Taiwan Semiconductor Manufacturing Co (TSMC) was at the center of the crisis, given its production capacity and effort to expand chip production like last year’s $12 billion factory plan in the United States.

It spent billions in the past to ensure it is at the forefront of semiconductor production technology, and in the face of trade war between the US and China, TSMC’s move was most welcome. Unfortunately, TSMC’s efforts have failed to meet the needs of the tech industry as demand grows daily beyond its supply capabilities.

Huawei, a major chip consumer was cut off from the supply chain through the US ban restricting American companies from selling to the Chinese telecom vendor. There was belief that sidelining Huawei would ameliorate the shortage, but it doesn’t.

Nio, just like several other automakers, has become a victim of the crisis that is escalating to other sectors. Shares of the EV giant which makes the ES8 electric sport-utility vehicles fell more than 7% in the US premarket trading.

Nio, which is the only carmaker challenging Tesla’s dominance in China’s EV market, said in addition to halting production for five days at its Hefei plant, it will cut its first-quarter delivery forecast by as much as 1,000 vehicles.

Other automakers; Ford Motor, Honda Motor, General Motors, Nissan, Volvo and Volkswagen are also among those caught in the crisis. And just like Nio, they have been forced to hold back production amidst increased vehicle demand.

Ford said chip shortage could cut its 2021 profit by up to $2.5 billion, while GM is expecting the crisis to reduce its annual profit by at least $2 billion. Volvo said Tuesday the shortage will have a significant impact on its second quarter earnings, and it would implement stop days across its sites globally beginning in April.

Japanese automaker Nissan, said it has canceled all production at its assembly plants at Smyrna, Tennessee, and Canton, Mississippi, Aguascalientes plant 1 in Mexico, for April 1 and 5.

The chip scarcity is as a result of an increased demand from the electronics industry fueled by pandemic-induced restrictions and the work-from-home new normal which has been accompanied by activities such as streaming and playing video games.

While the electronics industry is badly hit, the auto industry is beginning to count huge losses. Research firm AutoForecast Solution estimates that the shortage has cost the global auto industry 130,000 vehicles in lost production, with the heaviest impact in North America with 74,000 units lost, and Western Europe, with 35,000 lost.

Samsung, the world’s largest smartphone maker, had warned earlier in the month that the shortage will disrupt global smartphone production, and it may skip the launch of the next Galaxy Note smartphone. The South Korean giant has been experiencing a shortage of Qualcomm’s application processors.

Demand for Qualcomm’s chip soared in the past months as Android phone makers woo consumers abandoning Huawei due to US sanctions. Qualcomm has found it hard to meet the surge in demand partly due to a shortage of some subcomponents used in its chips. Cristiano Amon, head of the world’s largest mobile chipmaker, said the shortage has been as a result of relying on just a handful of players in Asia.

Apple, one of the biggest buyers of chips said the sales of some new high-end iPhones were hemmed in by a shortage of components.

The growing tech needs emanating from the new normal is spurring the soaring demand for chips, gulping the smaller volume automakers buy. Bloomberg estimates that the auto industry may lose $61 billion of 2021 sales from chip shortages, as the crisis worsens.

Last month, Yoshihisa Kainuma, CEO of Minebea Mitsumi Inc. said the crisis is likely to escalate to other sectors, including aviation.

“Demand is springing up everywhere at a faster-than-expected pace. Airlines around the world are scrapping old aircraft to slim down their balance sheet. And People’s desire to travel will explode after the pandemic,” he said.

The shortage of chips is expected to instigate a surge in prices of smartphones and vehicles soon, compounding the rising price of goods and services induced by the disruption of the global supply chain.

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