Supply chain problems have been a recurring theme on the Dashboard since COVID began. Whether it be protests in Canada, the need for more batteries for electric vehicles, investigations into the problems by the FTC, and general ongoing disruptions, there is no shortage of supply chain stories dealing with supply chain shortages. And these stories are just in the last few months! Microchip shortages have been a problem for the industry for at least a year, if not longer. Still, entering year three of the COVID-19 pandemic, the automotive industry lacks enough microchips to make vehicles the way that the industry wants to. And, importantly, the way that customers have come to expect and demand.
Ironically, as demand for vehicles is as high as ever, companies simply cannot make enough cars and manufacturing production is down almost 16% worldwide in 2020 from 2019. The United States alone dropped 19% in one year. And, almost 28% from 2015 levels. The resulting low supply has led to increased demand and price hikes. The rosiest estimates expect the chip shortage to, possibly, normalize a bit in the latter half of 2022.
But will it? What evidence is there that it will? Where is the new supply coming from? Announcements to build new chip plants are great, for 2025. The latest and newest chip plant to be built in the United States will be in Ohio and be open for production in 2025 – three years after its announcement. Meanwhile, demand for chips is not abating; they go in everything. The world is becoming more digitized, not less. One new plant is great, but it does nothing for 2022, 2023, or 2024.
Knowing how we got here is key to knowing how to get out of this jam. CNET has a great article analyzing some of the issues and decisions that have impacted the automotive industry since the pandemic began. Some of the more interesting tidbits include the fact that automakers slashed chip orders at the beginning of the pandemic. They expected demand to crater and they did not want to be caught with inventory. In response, chip manufacturers moved production lines to meet demand for all the consumer goods people bought around the world. That production allocation has not reverted to pre-pandemic levels leaving the auto industry short on chips. Of course, even consumer product manufacturers are short of chips as new globally launched products face delays before their launch date. Another problem for automakers is that the chips they want and need are less profitable for microchip manufacturers. Given the choice of making profitable, cutting edge microchips for tens of millions of consumer products or less profitable microchips for millions of vehicles, manufacturers are choosing the former.
Vehicle makers are making due with their limited chip supply, sacrificing features to get vehicles on lots. Want heated seats and steering wheel? Your best bet might be buying a used car as those chips are sacrificed. Want a touch screen? Again, new cars, even luxury models, might not have them for a while.
On the bright side, vehicle dependability is higher than ever. Therefore, that old reliable vehicle you own might just need to get older before you can replace it.
