When The Chips Are Down: A Look Into The Global Semiconductor Chip Shortage
The world is running low on semiconductors. How did we get here?
Mahindra & Mahindra (M&M) is looking to scale down the production because of the ongoing global semiconductor chip shortage. The chip shortage has already started to affect M&M’s product delivery plans. This announcement by M&M comes after Maruti Suzuki announced plans of cutting down production because of the chip crisis.
Global auto companies are going through the same problem. Beginning next week, General Motors is again stopping the assembly lines of several pickup truck plans because the firm doesn’t have enough computer chips. Last month, Ford Motors announced that its second-quarter profits had plunged by 50%, more than half a billion dollars, mostly because of the lack of semiconductors. Stellantis, the Dutch automotive conglomerate, stalled production of its Jeep Gladiator pickup in July as the company couldn’t secure enough chips.
Where Did It Start?
The beginning of the COVID-19 pandemic in early 2020 sparked a global spending spree on electronic items. Some people needed extra monitors to set up their home offices while some wanted televisions and games consoles to keep themselves entertained during the lockdown. There was a pressure on supplies as factories were closed temporarily. When plants reopened, electronic goods producers continued to place orders, and this created an ever-increasing backlog for the chips.
The pandemic isn’t the only culprit that caused this chip crisis. A storm briefly halted production at various plants in Texas in February, and a fire ripped through a Japanese factory in March. The U.S-China tensions also affected the supply chain. In August 2020, the US banned foreign companies whose chips use American technology from selling to Chinese tech firm Huawei, over espionage allegations. Huawei started stockpiling semiconductors before the sanctions came into effect, and other companies began doing the same. This affected the supplies even more.
The Impact
Mostly car manufacturers, and consumer electronics manufacturers, are the consumers of semiconductor chips. Since they haven’t been receiving enough of this important component, they are having trouble to continue production. In order to deal with the shortage, car manufacturers are selling the car without certain features. GM has sold some of its newest pickups and SUVs without advanced gas management systems or wireless charging features. Also, Renault stopped installing the large screens that sit behind the wheel of its Arkana SUV models. On top of this, Nissan left navigation systems out of thousands of cars.
This is also affecting the car prices. One analyst told The Verge, around 13% of people buying a car in April paid above stick price, as against to 8% in 2020. The chip shortage has not only led to higher prices for new cars, but higher prices for older vehicles as well.
Consumer tech companies are also facing a shortage in semiconductors. This is causing the price of laptops and TVs to increase and delays in orders for smartphones and gaming consoles. Strategy Analytics estimated that, on average, the global wholesale price for phones jumped 5% between April and June. One investment research company told The Wall Street Journal that HP alone had increased the price of printers by over 20% over the course of one year. Xiaomi, a China-based electronics company, delayed the shipment of a new device model in India. Sony has also warned customers that there will not be a large supply of the PlayStation 5 until at least 2022.
The Future
The shortage of semiconductors is emerging as a major problem for car makers, electronics manufacturers, and customers. So, how long is this expected to continue? Jim Farley, Ford President and CEO said, as quoted by Reuters, “Estimates project the full recovery of the auto chip supply will stretch into the fourth quarter of this year and possibly even into 2022, making industry volume recovery in the second half of this year even more challenging.”
But why can’t we build more plants so that they can produce more semiconductor chips? Patrick Penfield, a supply chain management professor at Syracuse University, told Recode, “It’s not like you can just build a plant in 30 days. It takes roughly about 2.5 years…” Also, constructing more plants will need a lot of investments.
So, what actions are being taken to tackle the crisis? According to Falan Yinug of the Semiconductor Industry Association, a trade and lobbying group that represents the chip industry said, as mentioned by Recode, chipmakers are already producing chips at their maximum capacity. US President Joe Biden administration officials have already brokered negotiations between semiconductor makers and car companies, helping push more chips back into the hands of automakers.
Zooming Out
Governments and companies are trying their best to handle this crisis, as quickly as they can. However, there are also concerns that they are focusing on only one industry (i.e.) the auto industry. Medical device makers use chips for everything from patient monitoring systems to assistive robots for surgery. Commerce Secretary Gina Raimondo urged to avoid “prioritizing one industry over another.”
Semiconductor chips play a huge role in several industries, and the governments should formulate policies to deal with this crisis. If this continues, car prices, and even prices of medical services might become more expensive in the upcoming days. With the world tackling the pandemic’s effects, including high unemployment, rising costs, recessions, unequal access to vaccines and medical facilities, the chip shortage puts more pressure on companies and people. More investments should be made into this industry, and the manufacturing should be sped up, so that this crisis can be solved as quickly as possible.
