Feb 5, 2021 - Economy

"Chip famine" slams the auto industry

Illustration of a lone computer chip on an otherwise empty plate, a fork and knife are on each side of the plate. 

Illustration: Aïda Amer/Axios

A global chip shortage has forced virtually every major automaker to halt some car production and furlough workers — just as the industry was showing signs of recovery from the pandemic-related shutdowns last spring.

Why it matters: Fewer chips, fewer cars. Semiconductors are crucial components that make computer-controlled systems in cars work — everything from engines to power windows, as well as driver-assistance and navigation features.

What's going on: Automakers needed fewer chips when the pandemic forced them to halt production. Chipmakers curbed production then ramped back up, though they still can't meet the industry's abrupt demand rebound.

  • Not helping: A tension long in the making. Chip appetite from the tech industry has been surging. But it skyrocketed when the pandemic supercharged appetite for electronics that need chips to operate.

The list of chip shortage victims keeps growing: Ford is the latest, slashing production of its top money-making F-150 pickup trucks because of the limited supply of the key auto component.

  • The company is bracing for a big hit: “Right now, estimates from [chip] suppliers could suggest losing 10% to 20% of our planned first-quarter production," Ford CFO John Lawler said yesterday. That could translate into lost profits of $1 billion to $2.5 billion for 2021, he said.

The company joins General Motors, Nissan, Volkswagen, Toyota, Mazda and Subaru in cutting production output — all citing the semiconductor shortage.

By the numbers: The problem will result in nearly 700,000 fewer vehicles produced globally this quarter alone, according to new research from IHS Markit. It also said the problem might not let up until Q3.

  • Alix Partners says the lost revenue could be as much as $61 billion this year, per Bloomberg.

Between the lines: Major semiconductor suppliers, such as Taiwan-based Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) say they are investing to expand production, but that will take time.

  • The problem has caught Washington's attention, with more than a dozen senators calling on the White House to support additional funding to expand chip production in the U.S.

The bottom line: "Automakers cutting production now because of a chip supply bottleneck will cause a cascade of issues throughout the supply chain," Sam Abuelsamid, an analyst at Guidehouse Insights, tells Axios.

  • "Not only will the automakers be cutting production, so will all of their suppliers. This will be very costly throughout the industry."

Go deeper: Why Intel's chip troubles should concern us all

Go deeper