Global Auto Chip Shortage Should Recover By Year End.
“Car-makers are reducing output and idling plants until the shortage eases, which we expect to take several months”
The automotive semiconductor shortage was caused in part by demand by bored gamers stuck at home by coronavirus lockdowns, but likely will be over by the end of the year.
Initial reports had suggested the shortage for the automotive industry might disrupt production until 2023.
Chip prices for automotive companies will rise in the near term. Volkswagen will be hit the hardest by the shortage, while Toyota looks like being the least scathed. Hyundai/Kia of Korea and BMW have secured good long-term access to chip requirements and will also ride out the storm with ease.
“The semiconductor (microchip) shortage is disrupting automotive production and may delay a recovery of new vehicle sales and profitability in the sector. Car-makers are reducing output and selectively idling plants until the shortage eases, which we expect to take several months,” Fitch Ratings said.
Last month Fitch Solutions, a separate entity to Fitch Ratings, reckoned it could be much more serious, and last for a couple of years.
“It is difficult to say exactly how long the semiconductor shortage will last, however, by our estimates we believe the shortage could continue until the beginning of 2023,” Fitch Solutions said in a report. Fitch said the industry had failed to update its supply chains from the so-called “just-in time” model to a more diversified system, while next-generation vehicles demand more semiconductors and this could lead to a shortage of supply of vehicles posing a risk to sales growth, certainly in 2021.
Prices will jump 10%
Investment bank UBS was in the positive camp, saying it was increasingly likely supply-demand balance would improve from around the summer of 2021, meanwhile prices will rise about 10%.
“We think Toyota has felt virtually no impact due to internal systems that enable it to monitor the entire supply chain including materials. Hyundai/Kia and BMW have noted that they secured semiconductor inventory and will not be affected in the near future. However component production firms such as Bosch and Continental has been constrained and VW, which has a high production weighting in Germany has sharply cut output,” UBS said in a report.
Dev Rai VP of global sourcing at Sourcengine said previous shortages had concerned one commodity – memory chips or multi-layer ceramic capacitators – but this time everything is a problem at once. Rai said COVID-19 caused multiple factory shutdowns across many industries.
“But now we’re seeing all the sleeping industries waking up and demand going from zero to 100,” Rai said.
“These industries have huge demand to make up for lost time, but the semiconductor processing facilities are struggling to keep up with those needs. As a result, manufacturers have increased pricing – citing their higher production costs – and their customers are stuck between accepting new pricing or not getting their allocation,” Rai said.
Auto makers are finding themselves competing with other industries which have seen demand spurt during the global lockdown, according to Fitch Ratings.
Electric demand growing
“Increased demand for consumer electronics during lockdowns has led to the global microchip shortage, first reported in December 2020. The situation is particularly acute for automotive companies, which are experiencing a strong increase in electric vehicle demand, while chipmakers often reserve supply for larger technology companies. The shortage is disrupting automotive production in most regions, leading to sporadic slowdowns and selective plant shutdowns, although the overall scale and magnitude of the problem is not yet known. We expect disruptions to continue for several months and to dissipate in the 2nd half,” Fitch Ratings said.
“The shortage could delay the automotive sector’s recovery from the pandemic-related drop in demand, although we expect most of the lost production to be recouped in the second half.
Some positive news from Taiwan though, which said its major chipmakers would prioritize supplies for auto makers.