Apr 29, 2021 - Economy

Ford to lose half its Q2 production due to chip shortage

Illustration of a gas gauge near empty with a chip icon in the middle

Illustration: Sarah Grillo/Axios

The semiconductor shortage that is roiling the global auto industry will get worse before it gets better, Ford Motor Chief Executive Jim Farley warned Wednesday.

Why it matters: The chip shortage, which GM President Mark Reuss called the worst supply chain crisis in his career, means car buyers will continue to face fewer choices and higher prices.

  • And it's making the industry's pandemic recovery even harder.

Driving the news: Ford said Wednesday it will produce half as many vehicles as planned in the second quarter because it can't get enough chips to power all the electronic components for its cars and trucks.

  • While the worst of the crisis is likely to hit in the second quarter, Farley told analysts the shortage will probably extend into 2022.
  • Overall, Ford is expecting to produce 1.1 million fewer vehicles in 2021, causing a $2.5 billion hit to its bottom line.

The big picture: The global chip shortage is hampering supply of all kinds of goods, from cars to smartphones to networking gear. But the auto industry has been hit the worst, partly because of its just-in-time supply chains.

  • When the pandemic hit last spring, auto factories closed and manufacturers sharply curtailed orders.
  • But when demand picked up more quickly than expected, chip production had already been reallocated to the electronics industry.
  • A fire at a Renesas Electronics chip plant only worsened the crisis.

What they're saying: Qualcomm executives told Axios' Ina Fried that they expect the shortage to start easing, at least for them, by the end of the calendar year.

  • "We now have line of sight to material improvements for us toward the end of the calendar year," Qualcomm president and incoming CEO Cristiano Amon told Axios.

What to watch: Farley said Ford needs to control more of its supply chain in the future to avoid similar catastrophes.

  • "We have learned a lot through this crisis that can be applied to many critical components, and it goes far beyond semi chips."
  • "We're also thinking about what this means for the world of batteries, silicon, and other components that are mission critical."
  • "When I look at the company, and where we have to vertically integrate, these are the areas that we’re going to bet on moving inside the company."

What's next: GM reports its first quarter earnings on May 5.

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