The semiconductor chip shortage is spreading throughout the global automotive industry like cancer, stalling the production for a vast majority of companies. Nearly every major automaker has had to bear the brunt of this issue, the effects of which are also likely to be felt by car buyers around the world.
As per a recent update shared by the Washington Post, it has been estimated that the global auto industry is likely to produce between 1.5 million and five million fewer vehicles this year than what was originally planned.
It is also being speculated that the situation is likely to take a turn for the worse in the second quarter of the 2021 calendar year, with the difference between the demand a supply expected to grow larger.
At the moment, there are no concrete details regarding the time span of the chip shortage issue, but it is being foretold that the international auto industry may expect a tumultuous few months.
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What Caused the Shortage?
It is important to note that most of these chips are made in Taiwan, China, and Japan. The chip manufacturing firms had to cut back on their production operations in the early stages of the pandemic as a result of a global lockdown, which had already put a significant dent in the number of semi-conductors products to keep up with the yearly demand.
To everyone’s surprise, the global auto industry went through a dramatic revival after the easing of the lockdowns, with the demand for vehicles reaching an all-time high. This also meant a swift usage of the semiconductor stock, allowing the shortage of the chips in the market to catch up to the automakers.
Furthermore, it was learned recently that Taiwan is dealing with an acute shortfall of water. That is, reportedly, because the region is facing some climatic issues like the lack of rain and typhoons which has resulted in low aquifers that serve as an impediment in the production of the semiconductors.
It was also reported by CNBC earlier this month that a manufacturing plant of one of the major chip suppliers in Tokyo by the name of Renesas recently caught fire and that the company is currently undergoing the process of rehabilitation.
Cumulatively, the aforementioned issues are likely to cost the entire global automotive industry $110 billion worth of revenue, and is expected that the chip shortage issue will last until the better part of 2022.
Impact on Car Prices
The issue has affected the vehicle production-and-supply dynamic for all the major automakers in the worst possible way. Modern vehicles rely highly on this small chip to function properly. Vehicle components such as the infotainment system, modern gauge clusters, and more basic features such as brakes and power steering can in some cases be dependent on the semiconductor chip.
While some carmakers have worked out various solutions to the issues – such as the Stellantis Group going back to analog gauge clusters instead of digital ones – there are a few others, such as the Hyundai group, Volkswagen Audi Group (VAG), General Motors (GM), the Ford Motor Company, Mitsubishi, Subaru, and Nissan, that are in dire straits after the semiconductor shortfall.
For most companies, the biggest headache is the increase in production costs, which has been caused by trying to keep the supply up to speed with the growing demand. The supply-chain resiliency efforts are also being made by automakers around the world to cope with this issue or any other unforeseen issues that may befall them amid the ongoing uncertainty.
The price increases have already started taking effect in various major automotive markets around the world due to the increase in production costs.
Recently, the prices of the Tesla Model 3 and Model Y had been increased, and although the recent was not said to be the chip shortage, it is safe to assume that, owing to the presence of an advanced, all-digital interface in the vehicle that is likely operated by the said chip.
Likewise, there are many other cars – both existing and yet-to-arrive – that feature modern amenities dependent on and operated by these semiconductor chips that are likely to observe a massive price hike or a series of price hikes throughout the year.
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Possible Impact on the Pakistani Market
The Pakistani automotive industry has become quite rich with modern cars and SUVs as of late, all of which include modern features and amenities that might be dependent on the semiconductor chip.
It is debatable that none of the names from the Pakistani market (apart from the Hyundai group) have been mentioned in the article, which implies that the shortage is unlikely to impact the prices of vehicles here in Pakistan.
Note that recently, there has been a huge influx of Chinese cars and SUVs in the Pakistani market. Most of these vehicles rely on parts sourced by specific component manufacturers, and semiconductors are one of such components that are sourced to a lot of major automakers.
As far as Toyota, Honda, and Suzuki are concerned, they each have a sturdy supply chain but also rely on sourced parts. And as we learned earlier, a major Tokyo-based semiconductor chip maker is also out of action due to the fire incident, which implies that despite their names not having been mentioned, the big three are also in trouble in this regard.
Moreover, with each global calamity or issue, the Pakistani automotive industry is evidently always in search of an excuse to increase the prices of their vehicles. Hence, there is indeed a high possibility that we might see another wave of price-hikes in the Pakistani market very soon.
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