Why is there a global microchip crisis?
The global shortage of semiconductors has affected automakers, creators of video game consoles, computers, and other electronics around the world, even limiting their production — extending until next year — said the CEO of the manufacturer of Stellantis cars, according to information from Reuters.
“The semiconductor crisis, from what I see and I’m not sure I can see it all, will easily creep into the 22nd because I don’t see enough signs that additional production from supply points in Asia is going to reach the west in a near future, “said CEO Carlos Tavares at an Automotive Press Association event in Detroit.
The global chip crisis comes as demand for electronic and digital services has exploded during the recovery of the world economy after the coronavirus crisis, driving up the prices of new and used vehicles. Some automakers have adapted to the chip shortage by removing features from their models, while others have built vehicles without the necessary chips and then parked them until assembly can be completed later.
Stellantis is making decisions to change the diversity of the gadgets it intends to use — it takes about 18 months to design a vehicle to use a different chip due to the sophistication of the technology involved, he said. “The severity of the global chip shortage has gradually increased in recent months and now millions of people are being affected”.
As technology has advanced, semiconductor chips have spread from computers and automobiles to toothbrushes and dryers; they are hidden at the core of a large number of products.
These take advantage of the properties of semiconductor materials such as silicon, by using electric or magnetic fields, light, or heat to control the electrical current that flows to a device.
Practically, cars are becoming computers on wheels; they now include elements such as display screens, autonomous driving aids, sensors, mobile phones, and communications integration, and high-performance elements in their engines. This is possible thanks to semiconductors, which are driving innovation in the advancement of vehicles.
According to an article by semiingeneering.com, microchips have made it possible to replace manual systems with electrical systems, making them more efficient and less polluting; smart features like backup cameras, blind-spot detection, adaptive cruise control, lane change assist, airbag deployment, and emergency braking systems, and integrating smart computers that support the driver.
According to information from grandviewresearch, among the most prominent companies in the automotive chip market are NXP Semiconductors, Infineon Technologies, Renesas Electronics, STMicroelectronics, Texas Instruments Incorporated, Robert Bosch GmbH, and ON Semiconductor, which together owns approximately 50% of the global market.
Data from the World Bank revealed that in 2019 China exported products worth 418.584 million dollars to the United States, with a proportion of 16.75% of associates, being the country to which it sold the most services, mainly electronic manufacturing. In that same year, the Asian country exported monolithic integrated circuits or chips to the world, worth 103 billion dollars.
Start of the crisis
This problem started as a result of the Covid-19 pandemic; Semiconductor assembly plant personnel in China and around the world had to stop work, plants were closed and production stopped, causing a lack of supply. The movement of these objects was also held back by stricter restrictions at ports and international borders.
According to Xinhua.net, China’s overall business activity fell 56% in the week of February 16, 2020, when that country took steps to prevent the spread of the virus.
The country’s domestic supply chain led by Xi Jinping was hit especially hard: Orders between domestic companies fell by 60%, while the number of transactions between Chinese companies and international companies fell 50%.
In the fourth quarter of 2020 (4Q20), global computer shipments grew 26.1% year-on-year to 91.6 million units, according to preliminary results from International Data Corporation’s (IDC) global quarterly personal computing device tracker. The same category of devices grew 13.1% year-over-year for all of 2020 and the catalysts were working from home, remote learning, and restoring consumer demand.
In September 2020, the United States government imposed export restrictions on Semiconductor Manufacturing International Corporation, China’s largest chipmaker; Dozens of Chinese companies, including SMIC and drone maker DJI, were added to the so-called Department of Commerce entity list, which prohibits them from using American vendors and technology.
The launch of the ninth generation of video game consoles occurred during November 2020, in one of the most critical periods of the pandemic. Demand grew so high that they were resold on websites like eBay for 50–100% more than their retail prices.
The hardest moment
In February 2021 General Motors said it would extend production cuts in the United States, Canada, and Mexico until mid-March. Joining a long list of major automakers, including Ford, Honda, and Fiat Chrysler, who have warned their investors that they are slowing vehicle production due to chip shortages.
“The chip shortage was hardly discussed until near the end of the year, where mentions of the chip shortage skyrocketed and continued to rise until 2021. A study by consulting firm AlphaSense found more than 32,600 documents containing the phrase (and associated terms). ) “Chip shortage”, most of the mentions occurred between March and May ”.
Ford announced in late June that it will halt or reduce production at eight plants, including six in the United States, for variable periods during July and into early August due to the semiconductor shortage problem.
The crippling chip shortage hampering the global economy is going to get worse before it gets better, Intel CEO Pat Gelsinger said Thursday night at the company’s earnings conference. The CEO argued that the crisis could last until 2023.
“We remain in a very restricted environment where we cannot fully support demand,” Gelsinger said. The Intel CEO joined other chipmakers like Taiwan Semiconductor Manufacturing, who have said the shortage will last well beyond this year.
AlixPartners, a global consulting firm, estimated that the shortage will cost automakers globally $ 110 billion in lost revenue this year; in January the forecast reached $ 61 billion.
