Microchip Shortage: A Vehicle Manufacturers Nightmare
The COVID-19 pandemic had devastating economic effects at its peak, but its effect post-pandemic is as damaging, if not more, to businesses and the global economy. With supply chain issues for parts like microchips plaguing every business last year, including the automotive industry. People had high hopes that 2023 would be the year everything would turn around and start improving. But unfortunately, that does not seem to be the case, at least for the automotive industry.
History of Microchip Shortages
In 2020, the shortage of microchips began when manufacturing companies were subjected to a series of government-forced lockdowns. This break in production subsequently affected the number of microchips that could be produced.
These shortages have not improved since then, and in 2021, over 10 million vehicles had to be cut from production worldwide. In 2022, over four million vehicles were cut from production schedules due to shortages, so why is this still an ongoing problem?
While improving, the forecast of the microchip shortage in 2023 will still see the industry up to three million units short. These figures show a high pressure industry that has extraordinary demand and no product. Even though losing another 2-3 million vehicles will put more pressure on automotive brands, the trend shows that the shortage is easing, even if it is taking years.
Many top executives are optimistic about the direction the shortage is going in. When asked about when they thought it would end, the majority believe that this nightmare will end in 2023. A small minority think that it may drag on until 2024.
The Effect of the Shortage on Different Automotive Brands
While the microchip shortage has affected the whole industry, the severity of the deficit varies depending on the company. Automotive brands like BMW, Mercedes-Benz and Volvo stated that they had no microchip supply issues by the spring of 2022. While other brands like Nissan, Hyundai and Volkswagen said that their supply of microchips was not at optimum levels. However, numbers are constantly improving.
At the end of 2022, various brands, including Honda, General Motors and Toyota, reported that they are still grappling with massive supply issues pertaining to microchips. General Motors have reported that their supply issues with microchips and processors will continue for most of 2023.
It is still uncertain when the availability of the microchip will become steadier.
Removal of Feature Dependant on Microchips
The full extent of the problem cannot be shown through how many vehicles were cut from production over the last number of years. Some companies have found other ways to get their vehicles into dealerships. Some automotive companies have been rationing microchips. Others have removed features that rely on microchips to function.
Mercedes-Benz removed premium audio and wireless phone charging from their models. General Motors removed the assisted-driving part from the Cadillac Escalade and a range of other features in its vehicles. Even autonomous driving was pulled from BMW’s incredibly popular X3. Any customer that has bought a vehicle without these features was given a refund so that they may be able to add these back in once the microchip shortage subsides.
Microchip Manufacturers Up The Ante
To help with this shortage, the businesses that supply microchips for vehicles have increased their manufacturing capabilities so that they can produce more stock. Many companies, including Bosch, have invested billions in order to increase their output and the number of microchips for the automotive industry.
Wolfspeed opened the first American microchip manufacturing facility in New York in late 2022 to try and combat the supply issues that have been plaguing the industry. While there are several raw materials and infrastructure that need to be relied on to reach these goals, these investments should see a considerable increase in the number of microchips available in 2023.
One of the issues remains that automotive manufacturers are not just trying to fulfill 2023 orders. They are also still trying to backfill orders from the last number of years. Backfilling orders and honoring new orders will pose a challenge to all manufacturers.
The automotive industry accounts for over 20% of the microprocessors used globally. That means, the industry that manufacturers microchips are on a steady path. Not only is there a microchip shortage at the moment, but automotive manufacturers are adding more and more microchips into vehicles these days. They continue to increase the number of intuitive, computer-controlled features that vehicles have. Some cars use more than 1,000 microprocessors in one model.
In addition, the massive push from automotive manufacturers and governments for customers to buy electric or hybrid vehicles has pushed the microchip shortage into further crisis. Unfortunately, electric vehicles use twice as many microchips as their gas-powered counterparts.
Global Political and Industrial Problems
While some of the main factors causing disruptions are global issues rather than from a manufacturing point-of-view. The endless supply issues from China due to their numerous lockdowns are causing havoc. Today, they are still the biggest player in international manufacturing. Also, since China is a significant influencer in global manufacturing, the growing tensions between them and America are unproductive.
Of course, not forgetting the Ukrainian war that is still ongoing. Before the war, Ukraine manufactured several main components of microchips. With the ongoing war, their manufacturing capabilities are extremely limited, which is affecting the global supply.
It seems like the microchip crisis is in the process of resolving itself. Several manufacturing sectors are finally bouncing back from the effects of the COVID-19 pandemic. Whether it will be resolved entirely by the end of 2023 or early 2024 depends on several factors. Mainly including numerous industrial, global and political changes. With the increased investment in microchip technology and manufacturing, they should become more consistent with lead times for automotive companies and customers.