Headwinds continue to pile up for the auto industry and hopes of a post-pandemic recovery this year are slipping away. While the global chip shortage may abate for certain industries, automakers are likely to continue dealing with chip deficits over the next several years, partly due to the acceleration of EV adoption.
Auto companies are increasing the number of temporary factory shutdowns to deal with part shortages, leading to production forecasts being slashed further. As the severity of supply-side issues show no signs of slowing, price tags are expected to remain sky-high through next year, keeping consumers wary and driving total vehicle sales lower.
Related ETF & Stocks: First Trust NASDAQ Global Auto Index Fund (CARZ), Ford Motor Company (F), General Motors Company (GM)
Production Slows as Chip Shortage Refuses to Subside
MRP recently highlighted a myriad of issues plaguing major automakers, and the industry is now preparing for those headaches to last for quite some time. The ongoing global shortage of semiconductors remains one of the most critical issues facing the auto industry.
While the chip shortage may begin to abate for some technology companies in coming months, it is still creating several production setbacks for car manufacturers. Back in July, The Wall Street Journal reported that Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest semiconductor manufacturer, predicted the auto industry’s chip shortage would ease within a few months. However, that prediction has yet to look promising.
In fact, the Wall Street Journal reports that TSMC will continue hiking the prices of chips used in processes like auto manufacturing by 20% into next year. That is double the 10% increase they expect to introduce for prices of more advanced chips.
Last Spring, Big players such as Ford and General Motors had to institute an initial round of temporary factory shutdowns in the wake of material shortages of chips. At the time, analysts projected the shutdowns would cost the global automotive industry $60.6 billion in revenue for the year.
General Motors recently announced it will be idling production again, this time at nearly all of its factories in North America, due to the direct impact of the chip deficit, per Detroit Free Press. The company has previously curtailed production at some plants due to shortages and COVID-19 outbreaks, but the recent announcement is the most drastic measure the automaker has had to take since the pandemic began.
Similarly, Ford will be shutting production down for two weeks at one of its largest factories in Kansas City, citing similar chip-related problems.
A key factor driving the shortage is the accelerating transition toward electric vehicles, which typically require a significantly higher number of semiconductors. According to CNBC, a standard Ford Focus uses roughly 300 chips, while one of Ford’s new electric vehicles can necessitate as many as 3,000.
As the EV transition accelerates, effects of the shortage could last much longer than originally anticipated. According to…
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