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What’s Behind The Automotive Supply Chain Shortage?

One thing that I’ve noticed (and perhaps you have too) is that sometimes, car manufacturers can’t quite pump out as many units as they had planned, meaning that sometimes, we have to wait for a great new model to hit the Australian market – or else we find that when it does get here, it might not quite have all the electronic features that had been planned.  What’s behind all that?  This hasn’t happened before for as long as I can remember, including during the Global Financial Crisis of 2007–08. 

The problem seems to be that the automotive manufacturers can’t get hold of enough computer chips (semiconductors) to produce as much as they want to.  After all, car manufacturers make cars, not computer chips, so they have to get them from somewhere else.  These semiconductors are used in just about everything inside a new car, from the power steering through to the entertainment system, to say nothing of all the driver aids and sensors that every modern car comes with. Given their importance to motoring safety and convenience, a shortage of semiconductors obviously has an effect on the amount of cars that can be produced.

Like many things, you can blame it on COVID-19.  No, you really can.  It’s a supply and demand thing.  The problem is that the companies producing these silicone-based semiconductors can only make a finite number of these chips in a given amount of time.  After the semiconductors have been made, they have to be shipped on to the companies that put them into cars… and into other things.  During all the lockdowns and other madness of the pandemic, two things happened.  The first is that productivity in factories and in the supply chain slowed down dramatically because of the newly introduced hygiene measures. Extra cleaning meant there was less time to make, check and pack the semiconductors, staff shortages meant fewer people to do the work, and quarantines and travel restrictions meant that the products couldn’t be shipped as quickly.  So the semiconductor factories couldn’t produce as much.  This slowdown was particularly noticeable in the countries where the semiconductors were made – mostly in the East and Southeast Asia, which had stricter and stronger lockdown measures.  So that was one reason.

The second reason why COVID-19 led to a supply shortage was because the semiconductor chips are used for every single electronic device you can imagine (and in some you can’t imagine as well).  Now, what happened during the lockdown?  We weren’t driving as much, and we all had to stay home for work and for entertainment.  This meant that a lot of people invested in better home computer systems that allowed them to work from home or work remotely, and quite a few people decided to upgrade (or get into) gaming equipment.  I know I bought some new tech over this time, and you might have done so as well.  Given that the demand for new cars was going down but the demand for home-based electronics was rocketing, you can guess where the makers of the semiconductors decided to channel their products.  It didn’t help that a lot of car companies reputedly cancelled a bunch of orders at the start of the pandemic into the bargain.

Now, this slowdown was a bottleneck in the supply chain.  Things have calmed down at the supply end of the supply chain, but the after-effects are still being felt in the automotive industry, and it’s going to take a while for this to catch up.  However, things are taking longer to catch up than expected for a couple of other reasons.  One of them is strictly car-related.  There has been a push towards more electric vehicles, both BEVs and hybrids.  These cars need more silicon chips and semiconductors than ICE vehicles, and the supply of these chips is still catching up.

The other reason why it’s taking so long for supply to go back to normal is because of the Ukrainian conflict.  When armed conflicts break out, there is inevitably a huge demand for bigger, better and more sophisticated tech.  This is nothing new, and a lot of today’s big-name car manufacturers cut their teeth on producing war-related equipment 100 or so years ago.  However, this means that companies producing the componentry – such as silicone chips and semiconductors – will be on the hunt for big contracts from governmental defence departments, as these pay quite well.  Once again, this means that there aren’t as many semiconductors available for the automotive industry.

Given that Pestilence and War have led to Shortage, it would be easy to get gloomy and believe that The End Is Nigh, but I prefer to be optimistic.  If we’re patient, I think things will get better.  Stay cheerful and keep on driving safely!