Rising prices, longer lead times: car manufacturers will struggle for a long time with the shortage of semiconductors

Automakers were optimistic that chip production would return to normal by the end of 2022. They were apparently overly optimistic; the shortage persists and could well invite itself for a while into the strategy of large groups.

The automotive sector is particularly affected by the shortage of semiconductors. This crisis, which was to last only a few months, is bogged down โ€“ like what is happening with electric scooters. Manufacturers are struggling to see the light at the end of the tunnel. They must now integrate this particularly uncomfortable situation into their long-term strategy.

While some groups hoped for a return to normal before 2023, the situation still seems to be in bad shape. The head of purchasing on the board of directors of Volkswagen, Murat Aksel, spoke about it in the German weekly Automobilwoche and this sets the tone: “ What we’ve seen in supply chains over the past two years is the new normal.โ€

“It’s the new normal”

The covid has made it possible to update this flaw in the organization of car manufacturers. Even without the pandemic, geopolitical issues would have ended up revealing this organizational fragility sooner or later. This was the case with the war in Ukraine, which forced the Volkswagen group to cease production in Germany for a few days, due to the lack of an electrical harness manufactured by a Ukrainian factory.

Volkswagen Group electric vehicle production

It is a structural problem that car manufacturers must now solve to have sufficient stocks to meet their production needs. This does not only concern electric vehicles, but they are particularly affected by these shortages.

The head of purchasing within the Volkswagen board of directors added: โ€œ Investments for new capacities are now on track, but there will probably still be a structural deficit in semiconductors, until 2023 included. ยป

Not all manufacturers are affected in the same way by the shortage of automotive semiconductors. While Chinese production does not seem to have slowed down, European and American factories sometimes find themselves at a standstill. Tesla is not spared either. Within the same group, the strategy can promote the production of one brand rather than another, but everywhere, it is the entry-level models that are most often sacrificed.

What are the consequences of the continuation of this shortage?

For customers, the implications are multiple. This notably involves extended lead times, options and equipment not available to order, vehicles delivered not equipped as desired by the customer and prices revised upwards by the game of supply and demand.

If the consequences are especially visible for new vehicles, they are not neutral on the repairs of vehicles already in circulation. It is better to avoid having certain electronic failures at this time, the deadlines for obtaining spare parts may be extended.

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Like all electric cars, a lot of electronics on Megane E-tech // Source: Renault

For manufacturers, it’s a headache. The repercussions range from the increase in the price of components to the closure of factories for lack of parts to assemble vehicles. It is particularly the case for Renault and Stellantis these daysthe two groups must lay off their employees in certain factories, the time to recover the parts to restart production.

Many strategic choices are not necessarily visible, but the shortage of semiconductors leads to delays in the release schedules for new models. This is the case of the Nissan Ariya which should have been in concession in 2021 (and not at the end of 2022). It is also a rationalization of production with fewer finishes and equipment available in the catalog of certain brands. Manual tailgates and seats instead of electric ones? Don’t look, it’s probably that the shortage of semiconductors has gone through there.

Some manufacturers now fear that the production of batteries for electric vehicles will be the next test they have to face. This production, mainly carried out in China for the moment, could take over as a disruptor of global automotive manufacturing. Many have decided to build factories in Europe to overcome this dependency, but it will take several years for these new production sites to be operational.

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