Semiconductor Shortage To Continue Well Into 2022

Semiconductor Shortage To Continue Well Into 2022

Vehicle production has been slashed by seven million units so far this year due to the ongoing semiconductor shortage, according to an article published by the Wall Street Journal.

The article’s authors, David Yergin, Vice Chairman of IHS Markit, and Matteo Fini, Vice President for Automotive Supply Chain and Technology at IHS Markit, also say inventory levels are only 30 per cent of pre-pandemic figures, with vehicle manufacturers standing down employees and suspending production for several weeks.

According to the article, the industry faced a shortage of semiconductors in 2019 which was exacerbated by the closure of factories due to COVID-19 restrictions. OEMs struggled with manufacturers to gain supply, but semiconductor producers have recently granted priority to the vehicle industry. However, IHS Markit predicts supply won’t return to normal until late 2022, with some advanced-function chips to be in short supply until at least 2023.

Even so, supply may be interrupted post-pandemic as semiconductor companies prefer to manufacture higher-value chips for advanced applications such as artificial intelligence. The article said they may be reluctant to increase manufacturing capacity as it is a lengthy and costly exercise.

“An adequate supply of chips is going to become even more important for the auto industry’s future. Electric and self-driving vehicles require both leading-edge and traditional chip technology, and an electric vehicle powertrain has three times as many semiconductors as a traditional internal combustion engine and transmission. IHS Markit estimates the average vehicle currently contains about US$450 worth of semiconductors and we expect this to double by 2030,” the WSJ report said.

In the short term, some OEMs may ditch ‘just-in-time’ sourcing to give semiconductor manufacturers more demand certainty. “One company has reverted to mechanical dials on some cheaper models instead of digital displays so that those chips can be used for more expensive models. Auto makers and semiconductor companies are also forming strategic partnerships,” the article said.

Read the full article here.