Demand for cars and vehicles are on track to a great recovery as demand is rising across the industry. However, not everything is as sunny as it seems on the surface.
Reports have been coming in from various parts of the auto industry regarding huge shortages in computer chips, which are required to run the ever-growing complex systems within the vehicles of today. This unprecedented shortage is a result of a surprise rebound in car sales coupled with a boom in sales of tech gadgets.
The unfortunate situation that the auto industry has found itself in is part of a worldwide problem. Serious shortages of automotive-related chips are prompting global carmakers to cut output, putting the brakes on their post-pandemic recovery.
Honda Motor is slashing production in Japan, North America and China. Nissan Motor will be scaling down in Japan, while Toyota Motor will do so in the US. Ford, Volkswagen and Daimler also join the list of automakers curtailing production. The suppliers to these carmakers, both big and small, are also feeling the pinch of the shortage.
The issue reflects how the Covid-19 pandemic has fuelled demand for consumer electronics. Everything from video game consoles, 5G smartphone, desktop and laptop computers have been racing off shelves over the past year.
While automakers, so-called original equipment manufacturers (OEMs), produce some components themselves, many other parts, from engines to seats, are provided by dozens or even hundreds of suppliers, which in turn need other suppliers for smaller inputs, including chips.
The value of the chips inside each car is expected to rise from US$523 in 2020 to around US$607 this year, according to Leuh Fang, the chairman and president of Vanguard International Semiconductor.
Experts say carmakers need to put more effort into coming up with a “plan B” list of alternative suppliers. Manufacturers need to expand their “information-gathering” down the supply chain, identifying alternative suppliers “and bracing for production of substitutes when needed,” said Seiji Sugiura, a senior analyst at Tokai Tokyo Research Institute.