Making Sense of the Global Chip Shortage
Posted on May 20, 2021
The news cycle has been particularly overwhelming for the past year or so, so you could be forgiven if you’ve heard about a chip shortage that has been disrupting automobile manufacturing and glazed over it. It, frankly, sounds a little bit confusing, even for us. Computer chips? Little, tiny computer chips have been able to grind the manufacturing of vehicles to a halt? Tough to believe but it’s true and it speaks volumes about the level and intricacy of technology in our cars today.
It’s easy to forget about the interconnectivity that we’ve created for our lives but if the pandemic has shown us anything, it’s illustrated that our systems are fragile and that when one aspect of a system is pulled away the effect can be drastic. The chip shortage hasn’t just affected cars. Appliances, computers, cell phones, and more have risen in their scarcity since the shortage began. One CarHub employee relayed a story about the difficulty in sourcing computer parts at present, so many aspects of our lives will be touched by the chip shortage.
What does it mean for cars though? It means that new car production stands to be downsized in the coming months and that could have an effect on the way that new cars are purchased in the foreseeable future. The silver lining is that this could bring about some positive change, such as an uptick in the creation of avenues for advanced online orders for vehicles that have yet to be produced.
What does it mean for you? Let’s dig into it a little.
How Did it Begin?
It’s tough to pinpoint a single cause of the chip shortage but many have come together to create one, large problem. The shortage currently stems from the pandemic. When car production was forced to shut down in 2020 due to pandemic lockdown orders the automotive industry suddenly found itself competing with an increase in demand for consumer electronics that scooped up the majority of computer chips that are required for modern vehicles to operate.
An Unexpected Boost in Demand
When the lockdown happened, an explosion of demand for personal electronics came from consumers who found themselves under orders to shelter in place. Laptops, tablets, cell phones, and anything with the word ‘smart’ in it was snatched up as quickly as it could be produced.
This explosion didn’t stop at the electronics industry - cars got an increase in demand as well. Some manufacturers slowed down production early last year thinking sales would drop dramatically. When they didn't, manufacturers had to ramp up production to try to catch up with demand. Sales of new vehicles were higher than expected in 2020, likely due largely to the fact that people who found themselves under lockdown were suddenly very concerned with their sense of freedom.
Another factor is politics. American sanctions on China have had a cumulative effect on chip manufacturing. The vast majority of computer chips are created in China, so the squeeze that first became apparent in the automotive industry has seen a ripple effect across the electronics world, taking in everything from smartphones to refrigerators.
To add to this, another pandemic phenomenon has exacerbated the issue: panic buying. In this case, it’s not quite the great toilet paper scare of 2020 but it is companies that use computer chips in their products buying up all of the stock that they can and driving up the cost of components that make up semiconductor computer chips.
Semiconductors may not be things that we ever think about in our daily lives but as important as they are also very difficult to create. The process is complex and expensive, so it is limited to a relatively small amount of output facilities, such as Samsung, Renesas, and TSMC.
In March, fuel was added to the fire (pun intended) when a massive fire broke out at the Renesas plant in Japan. It just so happens that Renesas is the largest fabricator of chips intended for automobiles. So yeah. That one hurt.
How Does it Affect Cars?
The modern automobile is far from an engine and a shell. Cars today are increasingly governed by complex computer systems that moderate everything from fuel efficiency to driver-assisted braking. Our vehicles are laden with screens that tell us everything from the weather to a detailed, real-time map that guides us on our way. We love these features, they’re what make our cars so amazing these days but they’re also what has caused all of the major car manufacturers to put a pause on production until the chip shortage situation becomes a little less dire.
How’s it Looking?
Most chip manufacturers, including TSMC, have tried to inspire confidence that they will be able to meet their customers’ minimum requirement by the end of June but there’s likely a long way to go before everything gets back to normal. Even if semiconductor production can get back to normal within this year, a shortage of both new and used cars will likely be apparent, as consumers who normally would have traded in their vehicles for new versions will hold on to them if there are no new cars to be had. This will undoubtedly affect costs in both the used and new car markets.
What’s the CarHub Stance?
Like everyone else who is in the automotive industry, we are monitoring the situation closely. One thing is sure: no external factors could cause us to put aside the CarHub Promises that guide us in all of our transactions. Even if the chip shortage continues to affect the automotive industry, we will continue to offer hassle-free service, and a dedication to honesty and transparency.
Curious about how the chip shortage has affected your potential purchase? You can contact us any time to speak with a friendly and knowledgeable Product Advisor about what the chip shortage means for your buying options and what we can do to help.