The global semiconductor shortage continues to wreak havoc on the car market, leading KPMG to project losses of $100bn for manufacturers in 2021. The $100bn comes off the $2.1trn manufacturers had initially been projected to earn in 2021.
Output of new vehicles has been dramatically reduced.
Before the shortage, car makers were anticipating a bountiful year. Pent up demand due to the pandemic, combined with extra cash that people had saved during lockdown, was expected to lift sales of new cars to record highs.
But the semiconductor shortage has severely throttled output of new vehicles. As a result, people looking to buy new cars have instead turned to the used market, causing second-hand car prices to skyrocket. While this is great news for used car dealers and those looking to sell their car, it is badly hurting manufacturers.
The situation is likely to continue.
The end is not immediately in sight. Scott Jones, KPMG’s principle chip adviser, predicted that the shortage will last well into 2022. This is bad news for manufacturers. Due to the increasing use of electronics and computers in cars, semiconductor chips have become an integral component. Put simply, without chips cars cannot be built. Until the shortage comes to an end, output is likely to remain dampened.
Car manufacturers have been hit harder than most.
Car makers have been hit particularly hard by the shortage. This is because when it became apparent just how bad the pandemic was going to get they anticipated a major reduction in commerce and slashed orders of chips. At the same time, lockdown drove up demand for other electronic devices and, accordingly, demand for semiconductors. When demand for vehicles recovered faster than expected, car manufacturers found themselves at the back of the queue for chips.
This situation was then compounded by a series of unpredictable events, such as a fire at one of the worlds largest semiconductor factories. At the same time, Chinese companies began hoarding chips for themselves, both anticipating and exacerbating the global shortage.
Producers of chips, such as TSMC and Intel, are investing vast sums of money to build new factories. But they will take at least a year to be ready. As long as the global shortage persists, car manufacturers are likely to find themselves spinning their wheels.