Chip Shortage Disrupts Auto Industries all over the World

All over the world, auto assembly lines have ground to a screeching halt as a global dearth of vital microchips wreaks havoc on the auto industry.

What’s Driving the Shortage?

The enduring scarcity of the supply chain coupled with the uptick in demand for consumer electronics triggered by the end of the pandemic has left microchip manufacturers scrambling to make up the shortfall in supply.

While consumer electronic companies such as Samsung and LG said that the shortage would probably impact their production quantities, car manufacturers have been hardest hit by the short supply, leading to a global shortage of automobiles.

From your phone to your toaster — these microchips are an essential component of the modern economy. Given their ubiquity, it is shocking how unprepared and vulnerable major companies are to even minute disruptions in the supply chain. While companies prepare to go to war with their suppliers and the US threatens to reroute production back home, Ford Motors has seen its profit projections slashed by more than $2 billion and major producers like Intel and Taiwan Semiconductor Manufacturing Company are warning that the shortage could last for more than a year.

How did this Happen?

Back when cars were made the Henry Ford way, car manufacturers would stockpile massive amounts of components. As Japan began reconstruction efforts in the aftermath of the war, its premier automobile manufacturer began testing a more efficient means of production: the “lean machine.” A key feature of this innovative new production line? A small inventory of components and reliance upon having the necessary parts delivered as they were needed for a particular assembly task. This was the starting point of the just-in-time (JIT) manufacturing processes we are reliant upon today.

But JIT is dependent on a streamlined, robust supply chain. If there is so much as a single disruption in a single factory, everything comes to a shuddering stop. This is true whether the part is an engine, or a small silicon chip and over the course of the last twenty years chips have become as integral to mobility as gasoline. We’re hurtling rapidly towards a future where even the humblest vehicle will be a computer with wheels; but even now, the industry simply cannot function without a supply of chips.

And the chips just are not showing up – for several reasons. Mostly, it’s the geopolitical rivalry between the US and China, set in motion by the decision to shut Huawei out of western mobile networks. The remainder of the shortfall can be explained by the fact that the computer and mobile industries have been hoarding chips to keep from feeling the brunt of the crisis.

When Will it End?

Now, the exact impact of the shortage on consumers is difficult to assess. It isn’t yet clear how long the shortage will really last. As Cisco CEO Chuck Robbins told the BBC in late April: “We think we’ve got another six months to get through the short term. The providers are building out more capacity. And that’ll get better and better over the next 12 to 18 months.”

However, as demand remains high and supply unable to meet it, some industry experts forecast the shortage could last into 2023. The industry’s been forced to grapple with the terrifying precarity of the modern global supply chain, and while they’re hard at work putting more capacity in place, we can expect that to take time.