Chip Shortage Stymies Auto Recovery, While Supply Gap Inspires New Ideas.
“Brexit, climate and Trump trade wars exposed the vulnerabilities of overly-rigid, just in time supply chains”
The outlook for global auto sales is for continuing recovery from coronavirus lockdown slumps but at a slower pace than suggested by the early explosive rally, hampered by the shortage of semiconductors.
The lack of computer chips is also stimulating new ideas and technologies to help speed up the recovery from the shortage. Some suggest sharpening up the global supply network by eliminating old paper-based methods and concentrating on digitalization. Some see virtue in recycling old chips which are apparently dumped well before their useful days are over.
Companies like Navitas are suggesting ways to end the decades-old reliance on silicon with new materials like gallium nitride which allow for faster production of chips which are smaller, light and cheaper. That’s not likely to impact the auto industry until perhaps 2025 or 2026 though.
Meanwhile, the bottom line is the slowing recovery in global auto sales, says LMC Automotive.
“The semiconductor shortage is clearly having an impact on selling rates in key markets. With no immediate remedy in sight, there is a risk of the situation worsening in coming months, which could further disrupt the post-pandemic recovery in demand,” LMC Automotive said in its monthly global sales report.
LMC said the global selling rate in June slipped to 82.4 million cars and SUVs a year, from the previous month’s 82.9 million. LMC said the U.S. market began to feel the chip shortage in June with the selling rate falling to 15.4 million a year in June from 17.2 million in May. Western Europe’s selling rate rose to 13.7 million in June, but with the annual rate in the first half 12.9 million, that’s a long way down from 2019’s pre-pandemic 14.29 million. China’s selling rate of 25.2 million in June was sluggish, according to LMC, while the chip shortage in Japan dragged sales down to a 12-month low of 4.1 million.
Last week, the German auto industry association VDA cut its forecast for the nation’s car and SUV output to growth of 3%, down from a previous forecast of a 13% gain. This would bring annual production down to 3.6 million in 2021, 400,000 down from its previous forecast.
LMC said June sales in Western Europe are 24% below the same period of 2019, before the pandemic struck.
“Risks lie on the downside, as the semiconductor supply shortage threatens to disrupt the post-lockdown rebound in demand during the 2nd half of this year, with the chance that some consumers could delay their purchases if their desired model is experiencing supply issues,” LMC said in its West Europe sales report.
Data firm IHS Markit, in a recent report, said chip supply will remain a challenge and will only keep up with demand in the first quarter of 2022.
Investment bank UBS said stocks and prices of semiconductors are stabilizing but from extreme levels, while supply tightness will last well in 2022 as stocks have not yet started to increase.
Christian Lanng, CEO of San Francisco-based Tradeshift Network, said this chip shortfall is not just down to the pandemic, it has been likely for a long time.
“The computer chip shortage of the last 18 months isn’t a once-in-a-century event. It is the logical outcome for a supply chain sector that has been asking for too much of outdated technologies for far too long. Covid wasn’t the cause: it was merely the tide that went out and showed which businesses had been swimming naked,” Lanng said.
“Covid has had one beneficial effect: It revealed the inherent fragility of overextended supply chains, and the lack of visibility that comes from an overreliance on paper documentation and manual management. And it’s not like businesses haven’t had any warning: Brexit, climate events and Trump’s trade wars have all exposed the inherent vulnerabilities of overly-rigid, just in time supply chains,” Lanng said in an email.
Companies desperate for chip supply might want to look at the possibilities offered by recycling, says Sundar Kamak, head of manufacturing solutions at Redwood City, California, based-Ivalua Inc.
Kamak said as big manufacturers suspend production they could be looking for alternative sources such as reusing and recycling chips form older devises and equipment.
“Each year millions of devices and equipment containing chips are scrapped or thrown away – the UN found there was 53.6 million metric tonnes of e-waste in 2019 globally, of which just 17% was recycled. Not only could this help ease the burden on supply chains, it will also have a positive impact on the economy, and encourage regenerative design to reduce reliance on finite resources,” Kamak said.
Tradeshift Network’s Lanng said the pandemic has brought the semiconductor crisis to a head and big improvements need to be made fast.
“The next crisis isn’t far off in the future, it is happening now. The pandemic has driven huge change in consumer and business behaviour. To survive and stay relevant, businesses need to unlock far greater agility both in their supply chains and in their relationships with partners. They need vastly improved visibility throughout the supply chain and better communications between all parties. Above all, they need better relationships so buyer sand suppliers aren’t constantly at odds over payment or inventory but can support each other through turbulent times,” Lanng said.