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August 5, 2021

Chip Shortage May Outlast The Pandemic

The global semiconductor shortage will have far-reaching and long-lasting effects that are likely to have a greater impact on the automotive industry than the COVID pandemic.

Intel says they expect the shortage to “hit bottom” by the end of the year with the market possibly only returning to normal come 2023.

Tom Blackie, Founder and CEO, VNC Automotive, said: “In conversations with clients and suppliers, it’s become clear that the effects of the semiconductor shortage will long outlast the pandemic, and will potentially have a far more serious impact on sales and future development.”

“Some of our suppliers are seeing prices for chips that are more than 30 times higher than before, and at that level, their use is no longer sustainable,” Blackie continued.

True enough, in China, the world’s largest automobile market, government regulators have begun a probe into possible price gouging of chip suppliers keen to take advantage of the shortage.

“We’re even seeing vehicle buyers and fleet operators having to consider purchasing models that aren’t on their preferred lists because that’s all that’s available. At a time when the industry is asking people to consider making the switch to EVs, supply restrictions are leaving them frustrated,” adds Blackie.

Disruptions in the supply chain caused by fires and natural disasters at critical production plants have been compounded by an increase in demand for electronic devices and the car industry’s faster-than-anticipated sales rebound after enforced factory shutdowns.

With OEMs feeling the pinch, some are taking evasive action. Tesla’s CEO Elon Musk covered the issue of substituting alternative chips into production vehicles—having to write the new firmware in a ‘matter of weeks’, and the ‘intense effort’ this approach required. Obviously, this is an approach that many manufacturers will not be able to take.

OEMs may now be forced to simplify their designs to use fewer complex components that are still available. Sadly, this will lead to a reduction in functionality at a time when consumer expectations have never been higher.

In an effort to circumvent the situation some companies, such as Bosch, are looking at establishing their own manufacturing plants in order to create a guaranteed chain of supply. But this is not without its own implications, particularly with regard to increased costs and the possible negative knock-on effect for previously planned investments.

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