The global semiconductor chip shortage has severely disrupted the automotive industry since 2020. With new car demand outpacing supply, buyers are experiencing long wait times and inflated prices. When will the auto chip crisis finally end?
What caused the auto chip shortage?
A perfect storm of factors has led to the current chip deficit:
- Surging demand – New car sales rebounded faster than expected after pandemic lockdowns lifted. Many consumers opted for private vehicles over public transit.
- Supply chain disruptions – Chip factories shut down early in the pandemic. Fabs have struggled to ramp up capacity fast enough to meet auto sector needs.
- Competing priorities – Consumer electronics like phones and gaming systems often take priority over autos for chip allocation.
- Hoarding – Some auto manufacturers stockpiled chips preemptively worsening shortages.
- Weather events – Droughts, fires, winter storms, and power outages have impacted production.
- Geopolitics – US-China trade tensions and Russia’s invasion of Ukraine have exacerbated shortfalls.
When will the shortage end?
Many experts predict the auto chip crisis will persist into 2023 or even 2024. Chipmakers are investing billions to expand manufacturing, but new plants take years to build. Even as supply improves, strong auto demand will continue straining capacity.
Automaker forecasts
Automakers hold varying outlooks on when chip supply will normalize:
- Toyota – Shortage easing in 2022, ending in 2023
- Volkswagen – Disruptions continuing into 2023
- GM – Situation volatile, constraints lingering into 2023
- Ford – Tight inventories through 2022, relief in 2023
- Stellantis – Semiconductor supply still “quite constrained”
- Honda – Production hampered beyond 2022
Industry projections
Leading industry groups also see shortages continuing through next year:
- Gartner – Chip undersupply persisting through 2023
- KPMG – Deficit easing in late 2022, ending in 2023
- Roland Berger – Shortages until at least 2023
- AlixPartners – Disruptions significant into 2023
- PwC – Scarcity improving from late 2022 into 2023
Chipmakers like Intel and TSMC also indicate tight supply will continue throttling auto output through 2023. Nevertheless, expanding capacity should gradually improve availability over the next 18-24 months.
Which automakers are most impacted?
The chip crisis has hit automakers unequally depending on their size, regional exposure, and inventory strategies. Sales leaders like Toyota and Volkswagen maintained close supplier ties and ample stocks enabling them to weather shortages better. Premium brands like Mercedes-Benz have also coped due to higher margins. Mass market companies more reliant on just-in-time inventory got caught out when supply chains froze.
| Automaker | 2021 Sales Impact |
|---|---|
| GM | -1.8 million vehicles |
| Ford | -700,000 vehicles |
| Stellantis | -600,000 vehicles |
| Honda | -500,000 vehicles |
| Nissan | -500,000 vehicles |
The chip famine forced many automakers to halt production at plants globally. Lost output has totaled millions of vehicles, causing huge revenue losses.
Which chips are in shortest supply?
Today’s cars and trucks contain dozens of semiconductors powering critical systems:
| System | Chips Used |
|---|---|
| Powertrain | Microcontrollers |
| Body electronics | MOSFETs, diodes, rectifiers |
| Driver assistance | Microcontrollers, image sensors |
| Infotainment | Microcontrollers, memory |
| Connectivity | WiFi, Bluetooth chips |
Scarcity is particularly acute for less advanced chips built with mature nodes used in power systems, braking, and transmissions. Newer high-tech chips for ADAS, navigation and connectivity are also in tight supply.
Key shortage areas
Four chip categories face some of the worst deficits currently:
- Microcontrollers – Used throughout vehicles, especially shortages of MCUs for power and analog functions.
- Discrete power semiconductors – MOSFETs, diodes, IGBTs used in electric drivetrains.
- Display driver chips – Growing demand for large touchscreen displays.
- Image sensors – Powering advanced driver assistance and vision systems.
What is the outlook for EV chips?
Booming electric vehicle sales are driving surging demand for specialized chips:
- MOSFETs
- IGBTs
- Gate drivers
- Battery management chips
EV-specific chip shortages could impact the auto industry’s shift to electric drivetrains. Lead times for some EV components have stretched to over 50 weeks. However, theEV chip supply should improve as fabrication capacity grows.
Major EV chip suppliers
The major chipmakers supplying the electric vehicle market include:
- Infineon – Leading vendor of power semiconductors and microcontrollers.
- NXP – Provides ADAS, battery management, and connectivity chips.
- STMicroelectronics – Key supplier of silicon carbide and gallium nitride chips.
- Texas Instruments – Top provider of analog and embedded processors.
- ON Semiconductor – Major source of power discrete components.
Automakers are partnering closely with chipmakers to secure electric drivetrain semiconductor supplies through long-term agreements.
What is being done to address shortages?
Automakers and governments are taking steps to bolster chip supplies and reduce future disruption risks:
- Increasing orders and stockpiling inventory
- Using chip substitutes when possible
- Lowering semiconductor content per vehicle
- Securing direct allocations from chipmakers
- Coordinating supply chain transparency
- Simplifying vehicle designs and options
- Investing to expand production capacity
- Nearshoring chip fabrication plants
- Subsidizing domestic semiconductor manufacturing
- Stockpiling raw materials
However, building new foundries takes years. And hoarding chips can make shortages worse. Ultimately, better supply chain planning and coordination across the auto ecosystem will be needed to prevent future semiconductor crises.
Will shortages raise vehicle prices?
New and used car pricing has already been surging due to low inventories. Buyers are paying above MSRP and even above sticker prices set prior to shortages. Various factors are driving record high prices:
- Scarce supply allows dealers to charge markups
- Incentives and discounts are reduced or eliminated
- Customers accept paying more to get immediate delivery
- High demand enables automakers to allocate to highest bidders
Many analysts warn inflated vehicle prices will persist even after chip supplies recover:
- Pent-up demand has accumulated during shortages
- Restoring inventories will take time post-shortage
- Consumers have grown accustomed to higher prices
- Dealers reluctant to lose markup revenue
- Automakers seeking to recover profits lost to shortages
While prices should eventually moderate, the days of deep discounts off MSRP may be over in the post-shortage market.
Will used cars see lower depreciation?
With new car supplies limited, used vehicle prices have skyrocketed benefitting owners:
- Wholesale auctions setting record price gains
- Dealers paying top dollar to stock used inventory
- High trade-in values offered to attract sales
Typically new cars depreciate 20-30% in their first year. But in today’s abnormal market, many used vehicles are appreciating versus depreciating. Buyers priced out of expensive new cars have fewer lower-cost used options. This upside-down dynamic may persist until new car production fully recovers.
Will automakers permanently cut production?
Despite runaway demand, some automakers plan to pull back future production and sales volumes:
- Ford – Targeting yearly sales of 3.5 million by 2026, down from 4.2 million in 2020.
- GM – Plans to build 400,000 fewer vehicles through 2023. Will maintain lower inventory levels.
- Toyota – Keeping production below full capacity to limit discounting pressure.
More prudent output targets reflect efforts to right-size production, reduce glut risk, and avoid profit-damaging incentives. Post-shortage discipline could lead to tighter supplies, stabilized pricing, and higher margins. But lower volumes may require increased per-unit profitability.
Will chipmakers prioritize auto needs?
The auto industry only accounts for a small share of semiconductor demand globally. Consumer electronics are allocated more capacity currently. But chipmakers are responding to calls to increase auto chip supplies:
- Samsung – Investing $17 billion in new Texas foundry focused on automotive chips.
- TSMC – Planning Arizona plant to make advanced auto chips beginning in 2024.
- Intel – Working with automakers on chip redesigns to use more readily available semiconductors.
Chipmakers also benefit from the auto industry’s unusually high chip content per product. With vehicles using hundreds of dollars worth of semiconductors, the auto chip market remains highly lucrative. Long-term supply agreements and government subsidies will help drive further chip industry investments in auto-grade capacity.
Could chip demand growth slow?
Booming semiconductor demand from virtually every sector has strained fabrication capacity. But cracks are appearing that could ease pressure on automotive chip supplies:
- Smartphone market slowing – Global phone shipments down 9% in 2022.
- PC sales declining – Quarterly worldwide computer shipments dropped 15-20% in 2022.
- Data center investment moderating – Cloud capex projected to fall in 2023.
- Consumer electronics cooling – Falling demand for TVs, game consoles, crypto mining.
As other chip buyers pare back orders, foundries could allocate a higher share towards automotive needs. However, the auto industry’s rising semiconductor consumption will outweigh any declines elsewhere.
Conclusion
The unprecedented auto chip crisis has severely disrupted vehicle production over the past two years. Tight semiconductor supplies will continue plaguing automakers through 2022 and 2023. However, expanding chip capacity and moderating demand from other sectors should gradually improve availability. While shortages won’t disappear overnight, conditions are expected to normalize over the next 18-24 months. The shortage has underscored the importance of supply chain resilience and inventory management to automakers. Closer coordination with chip partners will help insulate the industry from future semiconductor supply shocks.
