Automakers may have to overhaul supply chains to address chip shortage

Infineon, currently Europe's largest chip provider, has warned carmakers in Europe they should overhaul their supply chains in order to deal with the global semiconductor shortage.

The shortage has seen carmakers slash their expectation for the first half of the year, and has temporarily halted many company's shifts towards greener engines.

Read more: Semiconductor shortage causes major automakers to cut production

Infineon CEO Reinhard Ploss told the FT that companies must consider the long waiting times for semiconductors in the modern climate.

He said: "Car companies cannot say 'OK fine, we don’t need any more chips', and then come back later and say ‘now we need them’. You have to consider current waiting times for semiconductors, which currently stands at around half a year."

Semiconductor bottlenecks have been occurring because a number of chip suppliers, primarily from Asia, have been reportedly halting the supply of chips to automakers in favour of the electronics industry.

The electronics industry has seen a boom during the pandemic owing to advances in remote working as well as higher demand for recreational electronics such as phones, tablets and games consoles.

However, demand has also outpaced supply in this sector, with electronic devices and parts often being completely out of stock at most retailers, with topping up happening sporadically and in waves.

Companies such as Ford, Renault and Volkswagen have had to cut or rearrange production at factories in order to tackle the shortages.

However, companies such as Porsche, Mercedes and Nissan have looked at rearranging their supply chains to meet demand.

Nissan has shifted battery production to its plant in Sunderland in order to not only deal with the chip shortage but also to adhere to the EU-UK Brexit trade deal that states all carmakers will have to source their batteries from within the UK or EU or face heavy tariffs.

Ploss looked to situations such as this when suggesting options for automakers currently waiting for restocks.

He added: "The automotive industry cannot expect chipmakers such as Infineon to take all the risk of holding the inventory. This would be a huge cash flow risk for us."

Another risk is the short shelf life of semiconductor, which can easily become contaminated and therefore unusable.

Read more: UK engine production drops by nearly 30% for January

Leaders in countries relying on the influx of chips from Asia have all called for an increase in domestic production.

Last week, US President Joe Biden signed an executive order to address the global chip shortage.

He called for industry players to strengthen their supply chains to prevent similar situations from occurring in the future.

EU leaders have also made similar calls, with discussions about supply chains resilience being a major topic at its recent EU Industry Days event.

There is currently little news on when the situation regarding chips may change, however, its effects on industry can already be felt.

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