Computer chip shortage disrupts global car production | Business| Economy and finance news from a German perspective | DW | 14.01.2021
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Computer chip shortage disrupts global car production

The auto industry has been left scrambling for semiconductors as a swift recovery catches their suppliers off guard. Strong demand for iPhones, Galaxy tabs and Playstation consoles from housebound consumers is to blame.

Volkswagen's Golf 8 being produced in Wolfsburg, Germany

VW has been forced to reduce production at its Wolfsburg plant because of a chip shortage

The world's biggest carmakers, including Toyota and Volkswagen, have been forced to halt or slow production as a global shortage of computer chips cripples auto part suppliers in the latest blow dealt to the car industry by the coronavirus pandemic.

Soaring demand for smartphones, gaming consoles, tabs and other electronics by homebound consumers has prompted semiconductor makers to divert capacity away from the auto industry, leaving car parts suppliers like Bosch and Continental struggling to keep their customers supplied.

The shortage of chips, which have become a crucial component in modern-day cars equipped with features such as touch screens, navigation systems and Bluetooth connectivity, is the latest blow to the global auto industry by the coronavirus pandemic, which shuttered factories and showrooms leading to a record drop in sales in spring last year.

"After the industry shut down in the early phase of the crisis and the resulting abrupt drop in demand, automobile manufacturers across all regions increased their production volumes much faster than expected by market experts. This resulted in large scale supply shortages for semiconductors," a Continental spokesperson told DW.

"With lead times of six to nine months, the semiconductor industry has not been able to scale up fast enough to meet this unexpected growth in automotive demand," she said, attributing the problem to the overbooking at silicon foundries from other industries like consumer electronics.

Volkswagen's biggest facility hit

German carmaker Volkswagen told DW that the chip shortage had affected production at its plants in China, North America and Europe. The company is curbing production at its Wolfsburg plant — the world's largest single car-manufacturing complex — on several days in January. VW has also applied for short-time work for the affected employees working on two production lines of the Tiguan, Touran and Tarraco, it said in a statement.

Daimler said it was "adapting" production at its Mercedes-Benz plant in Germany's Rastatt. The carmaker told DW it was too early to quantify the impact.

BMW said the chip shortage had not led to any interruptions in production so far.

Bosch, the world's largest car parts supplier, told DW it "cannot divorce itself from this trend." Bosch rival Continental said it was forced to ask its customers to "adapt their production or adjust their product mix in specific cases."

Renault, Honda, Ford, Nissan and Fiat Chrysler are also grappling with a shortage of semiconductors.  

Low on the priority list

Global auto sales have seen a swift recovery, driven by strong demand for premium cars in China, the world's biggest automobile market. Chinese car sales fell 6.8% last year, a spectacular recovery after having slumped 80% in February.

"The business came back much faster than we thought," Kurt Sievers, the CEO of Dutch automotive chip supplier NXP Semiconductors, told German business daily Handelsblatt last month.

NXP Semiconductors has told customers it would have to raise prices on all products because of the chip shortage and a rise in materials costs, Reuters news agency reported.

The auto industry is known to be down in the pecking order as far as chipmakers are concerned. They favor consumer electronics companies, such as Apple, as their orders are larger and they pay better.

Making matters worse for the carmakers is the fact that chip foundries such as Taiwan Semiconductor (TSMC), United Microelectronics and Globalfoundries, which supply to NXP and other automotive chip companies such as Germany's Infineon Technologies, are struggling to meet the demand even from their prime customers. iPhone maker Apple and video game console companies Sony and Microsoft have also been left scrambling for semiconductors.

The problem has been compounded by a US ban on China's top chipmaker SMIC and bulk buying by Huawei ahead of mid-September when its suppliers had to comply with US sanctions, Reuters reported.

"Future investment in these foundries will therefore be critical so that the automotive industry can avoid such supply chain upheavals in the future," Continental's spokeswoman said in a statement.

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No quick fix

"The bottlenecks from the semiconductor industry are expected to continue well into 2021, causing major disruptions in Continental's production," she said.

VW expects the situation to improve from the second quarter at the earliest.

Paul Lund, senior director at Fitch Ratings, says he expects the problem to continue for roughly six months to allow for chip manufacturers to increase the supply.

"The semiconductor industry is known for its high fixed costs, and it cannot flex production upwards easily — it requires time and investment to restart lines," he told DW. "A further issue is that as new car models are introduced, they have a higher level of technology content in terms of in-car entertainment, drive and safety systems, increasing demand for semiconductors."

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