Semiconductor shortage causes major automakers to cut production

A global shortage of semiconductors has forced several of the world's largest automakers such as Ford, Toyota, Nissan and Fiat to slash production - being the latest to suffer from a lack of chips as demand for cars bounces back from the coronavirus pandemic.

This shortage is thought to be caused by chipmakers reserving products for use in the manufacturing of electrical products, which have been in high demand throughout the pandemic.

Read more: British car industry sees biggest sales slump in over half a century

Many PC parts, games consoles, phones and other electricals have been in higher demand than supply owing to a large percentage of the population being forced to stay indoors, causing inventory shortages for many retailers.

Because of this, many automakers will have to wait to get the microprocessors required for their car infrastructure.

Bottlenecks such as this have caused companies such as Volkswagen to reduce manufacturing targets for the first quarter of the year. Company officials revealed it will produce 100,000 fewer cars at sites in North America, China and the US owing to a failure to secure supplies from manufacturers.

Nissan and Honda also revealed a plan to slash vehicle production, which is set to seriously affect the sales of their top models, with Honda set to trim production of several models in the coming months.

A global rise in demand for electric vehicles has significantly increased the sector's reliant on semiconductors.

With countries such as the UK opting to ban the sales of petrol vehicles outright and automakers such as Volvo suggesting other countries follow suit, demand for chips can only increase with time.

Continental, one of the world's largest car-parts provider revealed that motor supply chains had grown increasingly volatile.

The supplier told the FT: “After the industry shut down in the early phase of the crisis and the resulting abrupt drop in demand, automobile manufacturers across all regions increased their production volumes much faster than expected by market experts.

“With lead times of six to nine months, the semiconductor industry has not been able to scale up fast enough to meet this unexpected growth in automotive demand and overbooking at silicon foundries remains part of the problem."

Industry forecasts predict production could drop by as much as 20% in certain markets.

The effects of the coronavirus have thrown supply chains and markets into chaos and are affecting every sector in the manufacturing industry in some form.

Read more: Supply chains for a sustainable future: IE talks with Intel's Megan Stowe

A number of automakers have predicted the supply chains issues will continue well into 2021.

The US recently opted to blacklist China's Semiconductor Manufacturing Corporation as it attempts to clamp down on Chinese tech companies, which has sent many automakers scrambling to find alternatives.

With coronavirus cases still spiking and many nations enforcing further lockdown restrictions, there is a likelihood the supply slump will continue for the foreseeable future.

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