With the global semiconductor supply chain already under pressure due to Covid-19 and U.S-China relations, every minor disruption is felt throughout the globe. More recently, shares of Toyota, Nissan, and Honda fell in March due to a fire at a Tokyo Auto-Chip manufacturing plant. The plant is one of the world’s leading chip makers. The fire rendered the factory useless until it could pick up back again in April with new equipment.
While the factory has been up and running for over two months now at a limited capacity, industries that rely on semiconductor chips are still feeling the effects of the shutdown. In a supply chain this fragile, even consumers are starting to see the effects of disruption–most notably in the auto industry.
Right now, thousands of newly-manufactured cars sit in parking lots across America waiting on semiconductor chips before they can ship out to dealerships. But, how did this start in the first place? Let’s take a look back at the early days of the pandemic.
When automakers, suppliers, and dealerships initially shut down in March 2020, many abruptly cancelled orders for semiconductor chips, thinking there would be a sharp decline in car buying. While sales initially plummetted, online sales soared and demand quickly rebounded.
With all of America in a state of quarantine, sale of personal electronic devices skyrocketed, raising demand for microchips in many other industries.
“Automakers and suppliers that use chips contacted their chipmakers and put back their orders,” said Michelle Krebs, executive analyst for Autotrader. “By then, chip capacity was consumed by other businesses — phones, computers, video games — as people worked and schooled at home.”
This increase in demand thus created a bottleneck in the semiconductor supply chain, leaving industries to compete for chips.
So, what’s the result? Production cuts and higher vehicle prices. Since most American automakers don’t have as large of an inventory as normal, they’re forced to lay off American workers to continue operations. On top of that, average new vehicle prices are up 5.5% from last year according to Krebs. Even more concerning is the average used vehicle price jumping up 22% above 2020 levels.
Adjusting to Change
In the short term, automakers are trying everything possible to keep factories running. This includes cutting out parts that use excessive semiconductor chips or even manufacturing cars and parking them while they await a chip shipment.
In the long term, however, manufacturers are rethinking their supply chain and especially questioning their foreign dependence. On top of that, the U.S. government is taking initiative to aid manufacturers in their transition. Earlier this month, the U.S. Senate passed bipartisan legislation to invest more than $50 million into the production of semiconductors.
“The chip shortage demonstrated our exposure to a limited domestic production capacity to the point where it has turned into an issue of national security,” Said Joe McCabe, CEO of AutoForecast Solutions LLC. “Each major global market is now getting full support from their governments for a combination of domestic and redundant supply streams. Expect to see many new, smaller chip producers, scale up to help mitigate the issue in the future — with government money supporting the efforts.”
Meanwhile, some industry professionals are looking at alternative action. Scott Green, Principle Solutions Leader at 3D Systems, is looking at the possibility of metal 3D printing. While it wouldn’t be a final solution, it would help alleviate pressure on the timeline to create chip manufacturing facilities.
“A huge chunk of knowledge goes into it, but once it’s done, it works well and scales immediately,” said Green. “It streamlines the whole supply chain process, which is critical at a time like now.”
For Green and other professionals, their biggest concern is the American people.
“We want to help create high-paying, high-education jobs here, as well as the high end of the blue-collar market. The stakes are high.”