Why the automotive industry is the hardest hit and how automakers-and other chip buyers-can prepare for future semiconductor shortages
Nothing has demonstrated more clearly how much the economy and our way of life depend on semiconductors than the current global shortage. A series of events-a perfect storm of natural and man-made events, including the COVID-19 pandemic-has created a serious shortage of semiconductor products that is expected to last well into 2022.
Automotive was hit sooner and harder than other industries largely because automakers still tend to lack the close relationships with semiconductor suppliers that other customers have developed over time. Despite the rising importance of semiconductors in their products, automakers have not treated chips as critical components. They mostly rely on third parties, such as Tier 1 suppliers, to deal with chipmakers and generally lack visibility into and understanding of the supply chain.
When COVID-19 hit and car sales stalled, automakers slashed orders for electronic components to preserve capital-just as they did with orders for tires and mufflers. Meanwhile, other semiconductor customers-companies that have seen chip shortages before-didn’t cancel orders, even if end demand for their products was in question. When demand for cars rebounded later in the year, automakers found they were at the back of the line in a market with a severe supply/demand imbalance.
In this paper, we analyze the causes of the shortage and the outlook for a return to normal-and the ways in which automakers and other chip users can minimize the impact of future shortages. The supply/demand mismatch will not be resolved quickly. Despite accelerated capacity expansion plans by chipmakers-and even with growing political pressure to build up domestic supplies in Europe and the United States-there are no quick fixes due to the time it takes to bring new production online.
For more information, download the full report below.
- Surviving the silicon storm (PDF/2.6MB)