Computer chip
Source: Pixabay

Here’s Why the Global Chip Shortage for Cars Could Last Until 2023

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Oct. 27 2021, Published 7:15 a.m. ET

Carmakers such as Ford, Daimler, and Volkswagen have been hit hard by the global semiconductor chip shortage. The executives from each of these car companies have warned that the short supply of silicon chips is likely to persist.

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Car manufacturers have idled plants, shut down manufacturing lines, and laid off employees, and sales have dropped significantly. Many people want to know when the chip shortage will end for the automotive industry.

Why is there a chip shortage for cars?

Car manufacturers use semiconductor chips for everything, from power steering and brake sensors to entertainment systems and parking cameras. The chip shortage for cars is largely the result of significant fluctuations in demand due to the COVID-19 pandemic and the increased use of semiconductor chips in advanced cars.

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when will the chip shortage end for cars
Source: Pixabay

The events that led to the current chip shortage for cars began in the second quarter of 2020, when carmakers decreased production and chip procurement as the virus spread worldwide. At the same time, chipmakers reported an increase in demand for semiconductors used to support remote healthcare, virtual learning, and people working from home, all of which were essential during the pandemic.

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The automotive industry has also been hit hard because of its cost-conscious nature. Chipmakers supplied a major chunk of semiconductors to the telecom and server industries because their gross margins are better.

Almost every automaker has experienced production delays and brief shutdowns while waiting for the chips required to complete building cars on the assembly line. Toyota will reduce production by 15 percent in Nov. 2021 because of the chip shortage. Ford is expected to produce 1 million fewer automobiles in 2021 than its average output. Carmakers are also facing supply chain issues with labor, transportation, and other materials.

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when will the chip shortage end for cars
Source: Pixabay

General Motors reopening plants

The semiconductor chip shortage isn't gone, but General Motors has made significant progress in addressing it. The company intends to reopen the remaining three North American assembly facilities that have been idled due to the global chip shortage. General Motors also announced intentions to restart production of Chevrolet Malibu cars at a partially reopened Kansas factory for the first time in nearly nine months.

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General Motors announced that its Ramos Arispe plant in Mexico, which has been closed since mid-August, began producing Chevy Blazers on Oct. 18, and would start production of the Chevy Equinox by Nov. 1. Two additional Equinox factories, the San Luis Potosi Assembly in Mexico and the CAMI Assembly in Ontario, will reopen on Nov. 1.

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When will the chip shortage end for cars?

The chip shortage for cars will worsen before it gets better, due to the Delta COVID-19 variant’s ongoing disruption of chip production in Asia. The chip shortage will only begin to improve in mid-2022 as new silicon chip manufacturing capacity begins to come online. However, shortages could remain until mid-2023.

How much money carmakers lost due to chip shortage?

In 2021, the global auto industry is now expected to lose about $210 billion in revenue due to the semiconductor chip shortage, according to consulting company AlixPartners. The estimate is nearly double its previous forecast of $110 billion in May. AlixPartners is now estimating that the production of 7.7 million vehicles will be lost this year, up from 3.9 million in its previous projection in May.

According to Seraph Consulting, the chip shortage would cost the automotive sector $450 billion in worldwide sales from the start of the COVID-19 pandemic through the end of 2022.

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