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Taiwan's Economics Ministry Said it Will Prioritize Auto Chip Production Amid Ongoing Industry Shortages

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【Summary】Automakers around the world are being forced to curtail vehicle production due to an ongoing shortage of semiconductors, chips and other electronic components used in vehicle production, but efforts are being put into place to resolve it. The world's largest contract manufacturer of chips Taiwan Semiconductor Manufacturing Co Ltd (TSMC) said it will prioritize production of auto chips if it’s able to further increase capacity, Taiwan’s Economics Ministry said on Monday.

Eric Walz    Jan 25, 2021 11:55 AM PT
Taiwan's Economics Ministry Said it Will Prioritize Auto Chip Production Amid Ongoing Industry Shortages

Automakers around the world were forced to curtail production over the past month due to an ongoing shortage of semiconductors, chips and other electronic components used in vehicle production. The shortages are unprecedented and seem to have caught most of the auto industry off guard, as sales have rebounded from their pandemic lows and automakers ramp up production of thier best selling models.

The shortages have only impacted automakers recently as auto sales have bounced back in the second half of 2020, but in Taiwan where much of the world chips are produced, the country is offering its assistance.

Contract manufacturer Taiwan Semiconductor Manufacturing Co Ltd (TSMC) said it will prioritize production of auto chips if it's able to further increase capacity, Taiwan's Economics Ministry told Reuters on Monday after Minister Wang Mei-hua spoke to senior company executives.

Although TSMC stated that its current production capacity is full, it assured the ministry that "if production can be increased by optimizing production capacity, it will cooperate with the government to regard automotive chips as a primary application".

TSMC is the world's largest contract manufacturer of chips. In addition to the auto industry, TSMC also makes chips for Apple Inc., including the Apple A12 Bionic 64-bit ARM-based system on a chip (SoC) for the iPhone and iPad.

What Caused the Sudden Chip Shortage?

The global pandemic led to declining auto sales beginning in the second quarter of 2020. It also caused auto industry suppliers to scale back production. At the same time, automakers curtailed orders for semiconductors and chips used in vehicle production earlier last year. 

But as auto sales rebounded in the latter part of 2020 vehicle manufacturers began to resume full-scale production. The production increases led to widespread chip shortages for automakers in the U.S., Japan and Europe.

Two weeks ago. Ford Motor Co, Subaru Corp and Toyota Motor Corp said they will curtail production in the United States. Earlier this month, Ford shut down its Louisville, Kentucky plant for one week due to the shortages. The Louisville plant employs roughly 3,900 hourly workers and currently builds the popular Ford Escape SUV and luxury Lincoln Corsair.

"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 at the time.

Reuters also reported on Monday that Germany has asked Taiwan to persuade Taiwanese manufacturers to assist in easing a shortage of semiconductor chips. The request was made in a letter from German Economy Minister Peter Altmaier.

Mercedes Benz parent Daimler announced on Jan 15 it was cutting production and reducing hours at a second factory in Germany due to the global shortage of semiconductors. In addition, Daimler reduced production at its Bremen assembly plant which employs around 12,500 people. 

Other automakers affected in European markets include Volkswagen, Nissan and Fiat Chrysler Automobiles (FCA). Volkswagen said on Jan 13 it would scale back production at its main plant in northern Germany due to the semiconductor shortage.

The chip shortages are further exacerbated by trade tensions and tariffs between the U.S. and China brought forth by the former Trump administration, which led to suppliers scaling 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 an investigation into the country's trade practices, which government officials deemed unfair.

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

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