Kept in check by chips

Lack of semiconductors for chips required by vehicle electrical systems means the automotive manufacturing industry is feeling the crunch as demand continues to outstrip supply.

Whether they are EVs or old fashion fossil fuel guzzlers (petrol/diesel automobiles), there is a shift to models that require fewer chips. Once a poorly-understood workhorse, chips are now the most crucial and expensive component of modern- day life and in everything from toothbrushes to tumble dryers meaning the severity of the shortage is going to have significant global consequences.

Carmakers are being hit hardest due to poor inventory planning as the industry underestimated vehicle consumption and the amount of chips that would be needed when the pandemic hit. A new vehicle can have up to 100 semiconductor chips which are used from touchscreens to transition systems meaning the automotive industry is the hardest hit with major companies such as Ford, Volkswagon and Jaguar Land Rover being forced to shut down factories, lay off workers and slash vehicle production with some even leaving out high- end features as a result of the shortage.

Rental car companies who traditionally profit from buying new cars and renting them out are also feeling the effects, as they resort to buying used cars at auction instead (your 2006 Volkswagen Polo sitting on the street collecting cobwebs, could be worth more than you think!).

With metals and minerals already in high demand for the battery industry as the world transitions to electric vehicles and renewable energy that requires digital, battery backup energy supply and storage, the need to mitigate supply chain risk and find alternate sources for chips is vital.

The chip shortage is “perhaps the greatest supply shock” Ford CEO Jim Farley has ever seen.

The increase in demand for electronic goods intensified as a result of the Covid-19 pandemic along with inadequate supply chains and weather problems adding to the shortage. On average, it takes more than 3 months to make a chip with million dollar machines, lasers and molten tin. “There is no sign of supply catching up, or demand decreasing, while prices are rising across the chain…expect cars to cost more, phones to cost more”, Neil Campling, media and tech analyst at Mirabaud, international banking and financial group.