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Automakers Are Scaling Back Production Due to Growing Semiconductor Shortages

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【Summary】There is a shortage of semiconductor and other electronic components for motor vehicles as auto sales rebound from the global pandemic. The global pandemic forced suppliers to scale back production, and the rising demand from automakers as auto sales rebound from the lows of 2020 is leading to chip shortages in the U.S. and Europe.

Eric Walz    Jan 15, 2021 11:40 AM PT
Automakers Are Scaling Back Production Due to Growing Semiconductor Shortages

The auto industry is truly a globalized one. Not only do vehicle manufacturers such as Toyota, General Motors and BMW build cars around the world, the parts and components come from a vast network of global suppliers. Many of the electronic components, such as chips and semiconductors however come from China and Southeast Asia. 

However there is now a shortage of semiconductor and other electronic components as auto sales rebound from the global pandemic. The pandemic forced suppliers to scale back production, and the rising demand from automakers is leading to shortages in both the U.S. and Europe.

The problem is exacerbated by trade tensions and tariffs between the U.S. and China brought forth from the outgoing Trump administration, with suppliers were being forced to scale back exports to the U.S. 

In 2018, the Trump Administration imposed a 25% tariff on U.S. imports of semiconductors and other goods from China following a Section 301 investigation into China's trade practices, which government officials deemed unfair.

The shortages are unprecedented and seem to have caught the auto industry off guard as sales have rebounded and automakers ramp up production of best selling models.

As a result, Ford Motor Co, Subaru Corp and Toyota Motor Corp will curtail production in the United States. Last week, Ford shut down its Louisville, Kentucky plant this week due to the shortages. The Louisville plant employs roughly 3,800 hourly workers.

"The global semiconductor shortage is presenting challenges and production disruptions for the global auto industry, including Ford, which could have a significant knock-on effect on jobs and the economy given the importance of auto manufacturing," Ford Motor Co said in a statement last week.

In Europe, Mercedes Benz parent Daimler announced it will cut production and reduce working hours at a second factory, the latest automaker to suffer from a global shortage of semiconductors, the Handelsblatt daily reported on Thursday, citing unnamed company sources.

Daimler is reducing production at its Bremen assembly plant which employs 12,500 workers, the German newspaper reported. The plant may even close for a number of days in early February. Earlier this week, Daimler said it was cutting hours at its plant in Rastatt.

Other automakers affected in European markets include Volkswagen, Nissan and Fiat Chrysler Automobiles (FCA). Volkswagen said on Wednesday it would scale back production at its main plant in northern Germany due to the semiconductor shortage.

On Thursday, Volkswagen's luxury brand Audi also announced that it would reduce hours for about 10,000 employees at its Neckarsulm and Ingolstadt plants in Germany, Reuters reported. Production is expected to be reduced beginning next week and lasting until the end of January.

In addition to the auto industry, the chips are in high demand for consumer electronics, such as laptop computers, gaming consoles and other entertainment devices, which sales have spiked due to the pandemic as people look for entertainment options while stuck at home. The high demand led to shortages throughout 2020, but its only now being felt by the world's automakers.

Another factor leading to shortages is brisk auto sales. In the second quarter of 2020 during the beginning of the pandemic, automakers expected sales to fall due to a stalled economy and rising unemployment. As a result, automakers reduced orders for computer chips in early 2020. 

But when sales recovered faster than expected in the third and fourth quarters, it prompted automakers to ramp up production, which is now resulting in the recent shortages. 

Analysts are calling the recent chip shortages extreme and predict that the supply chains won't stabilize until spring at the earliest.

resource from: Reuters

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