Drive through a section of a city where there’s a density of car dealerships and notice the near-emptiness of their lots. Across America, there is a shortage of new and used automobiles for sale. The reason? A global semiconductor chip shortage.
General Motors has idled seven of its manufacturing plants in the US, Canada, and Mexico. Ford Motor announced, “the shortage has slashed its profit forecast by more than $2 billion.” Toyota Motor Corporation reported its plan to cut September production by 40% because of the shortage of semiconductors.
Why does the semiconductor chip shortage exist? There is a flurry of reasons.
- When COVID spread across the US in March 2020, car sales declined leading automakers to cancel their chip orders. Consequently, a major chip producer, Taiwan Semiconductor Manufacturing Company (TSMC), stopped making them. As car sales unexpectedly rebounded in late 2020, there was a shortage of chips leaving cars with no power parked in car-makers ’ lots costing them billions.
- Manufacturers of smartphones and video games have been given priority by producers of chips because those products are more profitable for semiconductor companies. Annually, there are 93 million automobiles manufactured while in the same period, 1.4 billion smartphones are produced.
- From the time an automobile company orders chips from the manufacturer, the supply chain takes 7 to 8 months before the delivery of the product.
- Globally, there are only three companies that produce the high-end chips required by automobiles.
- “Producing the newest five- or seven-nanometer chip requires billions of dollars in investment in specialized factories and a highly skilled labor force. As a result, there are relatively few facilities that make them.”
What is being done to address the worldwide semiconductor chip shortage?
Intel and TMSC are both investing billions by building semiconductor chip plants in Phoenix, Arizona.
Earlier this month, Intel announced it will spend $95 billion on chip production in Europe.
Unfortunately, these efforts will not yield results overnight. Intel CEO, Patrick Gelsinger, stated: “I think we have a couple of years until we catch up to the surging demand across every aspect of the business.”