Volkswagen Blames its Suppliers for the Chip Shortages Affecting its Vehicle Production

author: FutureCar Staff    

The ongoing chip shortage is affecting auto production around the world, including that of German automaker Volkswagen AG, which is the world's second biggest automaker. However the automaker is putting the blame on its suppliers, Reuters reports.

Volkswagen said bad planning on the part of its suppliers have only compounded the chip shortage affecting the global auto industry. The automaker claims it gave ample notice to suppliers that the pandemic's impact on vehicle production would be limited and resume quicker than expected after many of the world's automaker's idled factories during the height of the pandemic last spring.

Now that vehicle production is getting back to pre-pandemic levels, Volkswagen's prediction is turning out to be correct.

Volkswagen was one of the first automakers to warn of an impending chip shortage that resulted in automakers having to cut production, but the company also said that there would be a strong recovery in the second half of 2020. The automaker warned its suppliers in April of last year of the expected rebound, a VW executive, who requested anonymity, said to Reuters.

Volkswagen says it was made aware of the chip shortage by one of its suppliers at the end of November, but the warning came too late.

"We have communicated our demand early on. We have passed on our forecasts which have confirmed that demand," said the executive to Reuters.

"If suppliers do not trust our numbers and consult their own forecasts, we should have been informed straight away. This has not happened."

The events leading up to the recent shortages began almost a year ago. The global pandemic led to declining auto sales beginning in the second quarter of 2020, which caused suppliers to scale back manufacturing. At the same time, automakers curtailed orders for semiconductors and chips used in vehicle production earlier last year. 

With many people stuck at home, the pandemic also resulted in the booming sales of consumer electronics that use the same types of chips, such as gaming consoles and laptops which further increased demand. 

However, as auto sales rebounded quicker than expected in the latter part of 2020, vehicle manufacturers resumed full-scale production, spiking demand for chips once again. This led to widespread chip shortages for automakers in the U.S., Japan and Europe.

The VW executive that spoke to Reuters said that contradicting demand forecasts could explain the current shortages.

"This has caused a lot of trouble. If the supplier didn't have a chip problem in its own supply chain, we would get our control units," the person said.

One of Volkswagen's biggest suppliers is Robert Bosch which is one of the world's leading suppliers to the auto industry. Bosch said it was doing everything to keep its customers supplied and to keep the impacts to a minimum, adding it was in daily contact with suppliers and customers such as Volkswagen.

Volkswagen said this month it would consider sourcing chips straight from manufacturers to protect its supply.

In Taiwan where most of the world's chips are produced, the government is working to increase output. 

Contract manufacturer Taiwan Semiconductor Manufacturing Co Ltd (TSMC), which is the world's largest contract manufacturer of chips, said last month it will prioritize production of auto chips if it's able to further increase capacity Taiwan's Economics Ministry said 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."

Volkswagen rival Mercedes-Benz is also dealing with chip shortages. Parent company 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. 

U.S. automakers are also dealing with chip shortages. A month ago, Ford Motor Co, Subaru Corp and Toyota Motor Corp said they will curtail production in the U.S. 

Ford was forced to shut down its Louisville, Kentucky plant for one week last month 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 SUV.

Ford's U.S. rival General Motors is also facing chip shortages. Last week, GM said that vehicle production cuts will extend at least until Mid-March at two of its U.S. plants. In addition, the vehicles GM produces at two other plants will only be "partially built" until the chips are available to finish assembly, the automaker said.

GM is focusing on keeping the plants running that produce its more profitable full-size pickup trucks and SUVs. GM said it intended to ramp up production once the chip shortages are resolved to make up for the lost ground.

Volkswagen warned that chip supply issues will likely continue throughout the first half of 2021.

FutureCar Staff