The car industry’s superconductor chip woes began with the first round of supply chain disruptions in the early days of COVID-19. But IC issues have continued to plague automakers in the years after. In the first half of 2020, many automakers canceled or delayed chip orders as sales plummeted.
But when people began to come back to dealerships, those automakers found themselves at the back of
Aerial photos reveal thousands of Ford trucks awaiting chips at a Kentucky Speedway in 2022. Image Credit: Freeman Kelly Dronography the line behind other industries. 2022 was particularly difficult for the auto industry, with many forced to bring vehicles to market without key features. As nearly complete cars piled up in storage, many plants slowed or stopped production altogether.
In the first part of 2023, many automakers and buyers are hopeful that supply and demand will reach a more sustainable balance. But the years-long ordeal was more than a simple IC shortage and highlighted significant supply chain shortcomings. Not everyone is sure that it’s a good time to buy a car just yet.
Let’s take a closer look at how we got here and what analysts expect in 2023.
When it rains — Or doesn’t
As shutdowns rolled across the globe, manufacturers struggled to continue production, including semiconductor chip makers. And while that alone was enough to put a hitch in car making, additional problems were happening around the same time.
In 2021, Taiwan suffered its worst drought in 56 years, and many residents had to ration and hoard water. And the Baoshan No. 2 Reservoir fell to its lowest levels ever. Taiwan’s $100 billion semiconductor chip industry supplies around 90% of the world’s advanced microchips, and the Baoshan No. 2 Reservoir is one of the semiconductor industry’s most important water sources.
ICs on Ice
Around the same time, in February 2021, the semiconductor hub of the U.S. suffered a catastrophic ice storm that ground production to a halt. Texas struggled with a statewide power crisis brought on by a once-in-a-lifetime storm. Meanwhile, Samsung, NXP, Infineon Technologies and others shut down for days plants that normally operate around the clock, exacerbating the shortage issues.
A semi bad burn
Another blow came in April when the Renesas Electronics plant in Naka, Japan, experienced a devastating fire. Repairing and restarting production on the 300 mm wafers for ICs took time that automakers could ill afford.
Shifting priorities and meeting demand
At the start of the pandemic, auto sales fell sharply. Many chip producers pivoted to meet skyrocketing demand in other areas, such as personal electronics. But as COVID-19 continued, car sales picked back up again despite the ongoing shutdowns and restrictions.
However, car makers found themselves far back in the queue behind more profitable industries. Soon, photos circulated online of a sea of shiny-new Ford trucks in vast parking lots waiting for a few tiny chips to make them complete.
The drawbacks of JIT
Many manufacturers in various industries have moved toward a just-in-time (JIT) inventory management system in recent years. But the barrage of hits from the pandemic, wildly volatile demand, and catastrophic weather events meant that JIT could no longer function properly.
Renesas Electronics had about a month’s worth of wafers stockpiled at the time of the fire, but even when chipmakers worked around the clock, they still struggled to catch up.
[Learn more about supply chain management at GlobalSpec]
Global supply chain breakdown
An interconnected global market means that one company may design a chip, another company makes it, and yet another company places the chip into another component. And all three companies are in different countries, far from the final destination.
The more complex the supply chain, the less transparency there is. Carmakers, already reeling from miscalculating how quickly customers would come back, were also struggling to identify and resolve bottlenecks.
CHIPS Act
In 1990, the U.S. produced around 40% of the world’s semiconductor chips. Before the start of the pandemic, that number had dropped to 11%. As a result, Congress passed the Creating Helpful Incentives to Produce Semiconductors for America (CHIPS) Act in 2022 to invest in semiconductor research and development, as well as incentivize investment in and the expansion of existing chip production.
The goal is to create a more stable and sustainable IC production domestically that can help the auto industry better weather volatility and catastrophe. But new chip plants don’t just start putting out ICs overnight, so the potential impacts of the CHIPS Act are months or years away.
The return of heated seats in cars?
Analysts are cautious about proclaiming outright whether this is a good time to buy a car or not. While chip makers are still running at full tilt to catch up and port pile-ups are easing, other potential problems are brewing.
For one, tensions continue to escalate between China, Taiwan, and the U.S. Despite the drought, Taiwan still churns out an enormous chunk of the world’s superconductors. But China’s increasingly aggressive stance has many on edge, especially as the Ukraine-Russia war drags on.
Automakers are now working with better inventories and can offer features like heated seats again, but inflation pressures and recession worries are now depressing demand. It could mean a price drop for consumers, but it’s unclear if that drop will be enough for inflation-weary buyers in 2023.
