Why Is There a Silicon Chip Shortage?
The silicon chip shortage comes from shifts in demand early on the pandemic, which hampered factory production — and subsequently, automaker business. Essentially, with stay-at-home orders introduced at the start of the pandemic, automakers were forced to scale back their business, and their sales took a large initial hit. As a result, the silicon chip manufacturers rolled back production in semiconductor fabrication plants.
Now, as demand in the auto industry is bouncing back, a factory problem has emerged: original electronic manufacturers have pivoted to serve other industries, so automakers can’t get their hands on silicon chips as they could in the past. They are consequently experiencing a big disruption to their regular business.
Which Automakers Have Been Affected?
This shortage affecting semiconductor foundries has not impacted the entire auto industry — only certain automakers have suffered from factory disruptions.
Ford, for example, was forced to stop production at a Kentucky factory late last year, as well as in a factory in Germany. Another company impacted is Stellantis, the business formed from the merger of automakers Fiat, Chrysler, and Peugeot, as the company has cut silicon chip production in the United States, Mexico, and Canada. Audi is another car company that’s struggled, along with Subaru, whose business has been impacted by problems in a Japanese factory.
The problem has worsened in the past few weeks, arsTechnica reports, naming a litany of new automakers suffering from the detriment semiconductor foundries. Toyota, for example, is a company that has seen its business impacted by factory problems in Texas, while Mazda recently announced it may have to cut tens of thousands of units this year due to silicon chip shortages. Nissan has been forced to reduce hours, and General Motors has halted production in the US, Canada, Mexico, and South Korea also.
Damage to Automakers
These silicon chip supply issues are projected to impact automakers for months going forward. In other words, the likes of Nissan, General Motors, Mazda, Fiat, Chrysler, Peugeot, Audi, and Ford will also be forced to shoulder massive revenue losses. Current forecasts project that the sales hit to the auto industry could reach as much as $61 billion. Not every company will suffer, but a lot of business will be lost, analysts believe.
One company after another is now announcing that they have been forced — not by a lack of demand, but a lack of supply of silicon chips — that they will not be able to scale up their production as they need to in 2021. This will only serve to prolong the damages already incurred by automakers during the pandemic, and the list of company names affected continues to grow longer and longer.
About the Author
Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.