Lack of Domestic Production, High Demand for Microchips Could Cause 1.3 Million Vehicle Shortage in 2021

A Chrysler Group SUV goes through the assembly line at Chrysler's Jefferson North Assembly Plant April 26, 2012 in Detroit, Michigan. Today Chrysler reported a first quarter profit of $473 million, its largest quarterly profit since 1998. (Photo by Bill Pugliano/Getty Images)
Bill Pugliano/Getty Images

The high demand for microchips spurred by the coronavirus pandemic is causing a kink in the supply chain in the United States, including automobile production plants being idled because of the shortage and causing predictions of a shortfall of as many as 1.3 million vehicles in 2021.

The Manufacturer website reported on the development:

The prediction falls in line with earlier predictions by other sources. Earlier this year, IHS Markit predicted the chip shortage would cut annual production by 1 million to 1.3 million vehicles; Alix Partners anticipated the shortage would result in between 1.5 to 5 million fewer vehicles produced.

The article noted that President Joe Biden held summits with microchip industry leaders and Biden has also asked Congress to appropriate $37 billion in legislation to increase domestic production.

But the situation has since worsened, with GM and Ford announcing Thursday plans to temporarily idle more North American factories that can’t get enough semiconductors. The GM shutdowns, lasting a week or two per factory, affect 10,000 workers. In a letter to the Commerce Department, John Bozzella, CEO of the Alliance for Automotive Innovation, said that a recent survey of AAI member companies produced the figure. The AAI represents almost 99 percent of all manufacturers who sell cars and light trucks in the US.

“The chip shortage has forced a number of automakers to halt production and cancel shifts in the United States, with serious consequences for their workers and the communities in which they operate,” Bozzella wrote in the letter.

Reuters reported how the majority of microchips being produced in Asia has exacerbated the shortage and how it will affect more than vehicle production:

At the root of the squeeze is the under-investment in 8-inch chip manufacturing plants owned mostly by Asian firms, which means they have struggled to ramp up production as demand for 5G phones and laptops picked up faster than expected. Qualcomm Inc, whose chips feature in Samsung phones, is one major chipmaker struggling to keep up with demand. Apple Inc’s major supplier Foxconn also warned of the chip shortage affecting supply chains to clients.

The majority of chip production occurs in Asia currently, where major contract manufacturers such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) and Samsung handle production for hundreds of different chip companies. U.S. semiconductor companies account for 47 percent of global chip sales, but only 12 percent of global manufacturing is done in the United States.

Factories that produce wafers cost tens of billions of dollars to build, and expanding their capacity can take up to a year for testing and qualifying complex tools. Currently, four new factories are slated in the country, two by Intel Corp and one by TSMC in Arizona, and another by Samsung in Texas.

“Sanctions against Chinese tech companies have further exacerbated the crisis,” the Manufacturer website reported. “Originally concentrated in the auto industry, the shortage has now spread to a range of other consumer electronics, including smartphones, refrigerators and microwaves.”

The website reported Intel’s announcement that it will invest $20 billion to expand its U.S. semiconductor chip manufacturing capabilities.

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