The Global Chip Shortage: What Does it Mean for EVs?
One of the factories where EV semiconductors are produced. (Photo Courtesy: Taiwan Semiconductor Manufacturing Company)
The Global Chip Shortage
By: Jessica Lin
Toilet paper. Hand sanitizer. Cars. COVID-19 has hit every industry and halted the supply chains in every industry. The heart of the car industry - computer chips -is now forcing car companies everywhere to decide how they’re going to ration the remaining chips they have on hand. 93% of respondents from a survey believe that the chip shortage will be a heavy hitter on the car industry for every car manufacturer. Estimates have also found that the car industry lost $110 billion in revenue this year. However new estimates from January have predicted that the estimates were around $50 billion, which was not as severe as the first estimate; though just as severe.
Chip companies such as Taiwan Semiconductor Manufacturing Company (TSMC), one of the largest suppliers for chips for car manufacturers in Asia and the western countries, have their priorities set, especially during the pandemic. They are putting pressure on the car industry by prioritizing smartphone makers over carmakers because of how much more value the smartphone industry provides to TSMC. They are bottlenecking the car industry because the car industry, compared to the smartphone industry, only makes up 3% of TSMC’s sales. Compared to smartphones, half of TSMC’s sales come from the smartphone industry.
The supply chain to the manufacturing process has been shaken up quite badly on how limited the chips are to car manufacturers. Car manufacturers' reliance on just a few chip makers in the world has really harmed the production process for many car companies, especially those based in the United States. EV’s are taking a bigger hit because of their heavy reliance on these computer chips. The chips are the heart of electric cars. Without these chips, electric car production might be ending for a lot of these car companies that want to dip their toes into the EV market. Companies like GM are building trucks without a key fuel-saving feature because of the global chip shortage. Even companies like Nissan are removing navigation systems out of many low-end models that generally would have these navigation systems. Even Renault has tried to save chips by stopping the production of oversized digital screens behind the steering wheel on many of its SUVs like the Arkana.
This is having a tangible effect on the EV industry. Almost all car manufacturers have decided to cut car model productions. For instance, Volkswagen has cut production at plants in Germany and Mexico that make sedans and S.U.V.s for the American market. All these companies have either halted production of selective lower car models or their plants are idle without purpose.
The solution? Car manufacturers are begging the government for some support. With weather problems in Asia, companies such as TSMC have closed down some chip plants due to severe drought. So why aren’t governments helping? Car manufacturers are begging the government to provide a lending hand to pull themselves out of this mess. German lawmakers are pleading with Taiwan's lawmakers to be laxer to German car manufacturers. However, there is only so much the Taiwanese government can do due to severe weather patterns in their country. Relief doesn’t seem to be coming any time soon given weather conditions in Asia and domestic plants. Government officials in chip manufacturing companies do not see any foreseeable production of these chips any time soon.
So what does the future look like for car manufacturers? Car manufacturers are all rationing their chips for higher selective models. However, with the chip industry continuing to be lacking there doesn’t seem to be a light at the end of the tunnel. The car industry needs to improvise. They could: shave down on which car model to make, which most car manufacturers are all seeming to do, or two, take advantage of the chip shortage as a pro. For example, GM is removing TK chips from their cars and TK OEM is doing TK. Ford is also doing the same by building its F-150s without microchips. Different companies are scrambling to save their chips for higher models or just cutting production for different models. Such as GM removing 277,966 cars from its production plans and Stellantis doing the same by cutting it down by 252,193 units.
Since the market demand for cars is incredibly exponential, of course, car manufacturers want to produce as many cars as possible. However, they can implement an opposite tactic to stir more demand. Having customers crave new car models, they can stoke the flame for the exclusivity of these cars. Car manufacturers can turn the tide on the chip shortage by creating an artificial but real exclusivity for customers to grab for. Yes, the wait would be longer for each individual customer, however, by marketing to customers how exclusive each new electric car model is, they would not mind the wait as long as they get the car at the end. The light at the end of the tunnel might not be bright right now; however, it does not mean they cannot create a light of their own while in the tunnel.
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