Automotive Industry: The Shortage Of Microchips, Another Worrying Effect Of The PandemicAutomotive Industry: The Shortage Of Microchips, Another Worrying Effect Of The Pandemic

Although the manufacturers assure that at the local level, the shortage of semiconductors is not yet affecting them, many automakers are taking precautions because they expect the arrival of the impact in July. After the pandemic hit the global automotive industry hard, due to the number of infected and the restrictions that forced the closure of plants and dealerships, now a new tsunami is added: the lack of chips

The Shortage Of Microchips, Another Worrying Effect Of The Pandemic

This component, which a few years ago was only used by some technological equipment, today is essential for the operation of countless devices and even robotic machines in various industries. A new car or truck, for example, can have up to 100 chips.

“In the condition of microchips, semiconductors are located in basically all technical devices: in smartphones, televisions, and smartwatches. Without semiconductors, cars would not work, neither today nor in the future,” they say from Bosch, a chip manufacturer.

When the demand for vehicles began to pick up globally and the industry began to get back on its feet, this problem hit it again. Faced with this situation, numerous factories abroad had to suspend the production of some models.

The problem is so big that only in the first quarter of 2021 vehicle production fell, globally, by one million units, and analysts estimate that the industry will lose close to 61 billion dollars, only in this quarter as a consequence of missing chips.

However, at the local level, the companies consulted to assure that for the moment the shortage of semiconductors does not affect the production of models that are manufactured in our country.

“It is a great issue for automakers and for all those firms that manufacture products with electronic elements. We, in Argentina, where we manufacture two models, did not have major problems due to this issue and for the next month, we estimate not to have them.  In any case, we are following the situation of international logistics minute by minute”, explain sources from a German automaker.

From Stellantis, the new automotive group that brings together the Fiat, Peugeot, Jeep, Chrysler, Dodge, RAM, Citroën, Alfa Romeo, and DS Automobiles brands, they also clarify that Argentine production is not being affected by the semiconductor supply problem, but they reveal that some models that are manufactured in Europe did have complications. 

“We have modified the production of the Peugeot 308 S, which is manufactured in France. The model came out with a digital dashboard, but now we have changed it for the analog one that it had before due to the lack of chips”, they say.

Fernando Lema, Toyota Argentina’s Public Relations manager, acknowledges that the pandemic produced changes in consumption patterns, which generated a greater demand for electronic components. 

“The automotive industry, from a global point of view, represents approximately 15% of that input. The problem exists and affects us all equally. In any case, at Toyota Argentina, we have worked very closely with our suppliers and our parent company to continue producing without problems. It requires work and constant monitoring, and we hope that it will be regularized over the next few months ”, he adds.

While from Nissan they indicate that they are already taking measures: “We are reviewing the production programs in our factory in Santa Isabel, working together with our suppliers to evaluate and minimize the potential impacts on the supply chain and manufacturing,” they maintain.

But, beyond what local executives say, the impact will come. At the regional level, the production of some Brazilian factories has already begun to be compromised. Some automakers are even thinking of suspending production in Brazil for a few days if they can’t put the chain back together.

“We estimate that here (Argentina) the impact of this wave, which is already complicating Europe and the United States, will arrive between June and July. Surely in the next few days, we will have problems in local manufacturing, so we are already beginning to review and organize our processes so that the impact is as little as possible”, acknowledge sources from an automaker who prefers not to be mentioned.Read This Article: Instagram Ads

An Endless Problem?

The first signs of the semiconductor shortage appeared at the end of last year, but from the beginning of 2021, the impacts on the industry began to be seen. Plants in North America already in February received the first blows. Although automakers hope this issue will be resolved quickly, chip vendors are not so optimistic. In a recent interview, Intel CEO Pat Gelsinger said it could take several years to resolve.

This inconvenience occurred for two main reasons, but they arose from the same cause: Covid-19. On the one hand, chip production fell due to the closure of factories during periods of mandatory quarantine. At the same time, the pandemic also caused an explosion in demand for technological devices and, consequently, for one of its main components: semiconductors.

“Although the industry has already taken steps to address short-term constraints, it could take a couple of years for the ecosystem to fix the shortage,” Gelsinger added.

It is not all. Beyond all the complications caused by the pandemic, the geopolitical conflicts that the countries where the main component factories are located –Taiwan, China, and South Korea– are going through only exacerbate the problem.

Another reason that aggravated this problem is the sudden over-demand. It’s that the pandemic caused chip factories to start shutting down in early 2020. By the moment they started to reopen, they had a backlog of charges. To this was added that chip manufacturers also suffered an overdemand due to the increase in sales of personal computers, which was another effect of the health crisis. 

And even the launch of video game consoles that demand more sophisticated chips were added and that, also due to the confinement, were in great demand. That is also why technology firms are complicated by the lack of semiconductors. Apple said that it estimates it lose between 3 billion and 4 billion dollars only in the second quarter of the year due to this inconvenience.

The Owners Of The Chips

There are three types of companies that produce microprocessors. “There are those that design and manufacture in their facilities, as is the case with Intel and Samsung. Then there are many more that design their chips but outsource their manufacturing, like Qualcomm, Nvidia, and Apple, among others. And, finally, some only manufacture for third parties, called foundries or foundries. 

There are several here, but only three can produce the most advanced chips. The most prominent case is the Taiwanese TSMC (Taiwan Semiconductor Manufacturing Company), as it is the largest and most sophisticated manufacturer, supplier of Qualcomm, Apple, and Nvidia, among others”, explains Enrique Carrier, director of the consultancy Carrier y Asociados.

To measure the magnitude of what is happening, Carrier points out that given the persistence of strong demand, TSMC has just announced that it will allocate its investments to expand its production capacity from US$17 billion in 2020 to US$30 billion in 2021. “A 76% increase in just one year. Samsung and Intel also announced strong investments to install new factories. 

The first plan is to allocate 100 billion dollars until 2030. While Intel will do the same for 20 billion dollars and, in addition, announced the creation of an independent unit called Foundry Services, with which it will start manufacturing for third parties from the USA. 

It is that after seeing how Covid impacted global distribution chains and given the hypotheses of conflict involving Asia, “Shortages in the semiconductor industry are widespread, across all consumer electronics network products and also accessories, whether they are power management chips or RF (radio frequency) chips, which are embedded in tags or badges, For example). 

The recovery that we’ve seen across the industry, with digitalization accelerating, is driving semiconductors, and we see it across the board. Specifically for five-nanometer chips (it’s the size of the smallest semiconductor component, considering a nanometer to be one-millionth of a millimeter), I think we’re driving a new process. We hope that this will normalize towards the last part of 2021 ”, they say from Qualcomm.

A Life Saver

During this context, Bosch has just announced the opening of an ultra-modern chip factory, with Artificial Intelligence, highly automated, and fully connected machines. 

The plant, which is in Dresden, Germany, has already required an investment of around 1 billion euros. As anticipated, semiconductor production will begin in July, six months ahead of schedule. “The first semiconductors manufactured at the new plant will be installed in Bosch power tools. 

For automotive customers, chip production will begin in September, three months ahead of schedule,” the company statement explains. With this factory, the idea is precise to respond to the growing demand for these devices.

Throughout the life of a vehicle, chips are exposed to strong vibrations and extreme temperatures, ranging from well below freezing to well above the boiling point of water. 

This means that the development of semiconductors for cars is more complicated than those for other applications. It requires specialized expertise, and Bosch says it has accumulated that expertise over decades.

Like a great tsunami, the wave of chip shortages is hitting many industries, but auto seems to be one of the hardest hit. So thinks Luca de Meo, president and global CEO of Renault, who recently told shareholders of the rhombus: “The shortage of semiconductors could cause a drop in global production this year of at least 100,000 vehicles.”

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