Tesla Chief Executive Elon Musk Says New Chip Factories Will End the Global Shortage in the Industry by Next Year

author: FutureCar Staff    

A robot installs seats in a Model 3 sedan at Tesla’s California factory. (Photo: Balazs Gardi, Bloomberg Businessweek)

Speaking at a tech event in Italy on Friday, Tesla Chief Executive Elon Musk announced that new semiconductor factories currently under construction will supply enough chips to end the global shortage that has plagued the auto industry for the past 18 months. Reuters reported on Friday. 

Musk said the new factories will end the shortage by next year and that the chip shortages will be "short term in nature."

"There's a lot of chip fabrication plants that are being built," Musk said during a joint session with automaker Stellantis and Ferrari Chairman John Elkann, at Italian Tech Week in Turin. "I think we will have good capacity for providing chips by next year," he added.

Automakers around the world have been grappling with the global shortage of semiconductors since last year. Earlier this year, Tesla's Fremont plant was shut down for two days due to what Musk said were "parts shortages."  

On Sept 3, U.S. automaker General Motors announced it was suspending production at eight North American plants due to ongoing chip shortages.

Also this month, Japan's Toyota Motor Corp announced revised vehicle production plans for September and said it is reviewing its production plans for October due to part shortages. The company said the shortages are compounded by the spread of COVID-19 in Southeast Asia that shut down supplier factories. 

For the full-year production forecast for the fiscal year ending March 31, 2022, Toyota is adjusting its expected production volume to 9 million vehicles, down 300,000 vehicles from the 9.3 million units it forecasted earlier.

Alos during the meeting with the two auto executives in Italy, Musk thanked Elkann for the support that Tesla received between 2017 and 2019 from Comau, the robotics unit of Fiat Chrysler, now part of parent company Stellantis. Musk said that the production issues with the Model 3 was the "most painful period in the company's history."

The robotic assembly line equipment provided by Comau was installed at Tesla's Fremont, California factory and helped the company to ramp up production.

"John helped me a lot in that period," Musk said, adding Tesla had come close to bankruptcy "half a dozen times".

What Caused the Chip Shortages?

The chip shortages can be at least partially blamed on the global pandemic of last year, which led to declining auto sales and production output from electronics suppliers beginning in the second quarter of last year. Production was also hampered by temporary plant shutdowns due to the pandemic. 

The pandemic also led to automakers to curtailing orders for semiconductors and chips used in vehicle production. At the same time, demand for chips used in popular electronic devices such as laptops and game consoles spiked, as more people were forced to work remotely and spent more time at home.

But as auto sales rebounded sooner than expected in the fall of 2020 and automakers ramped up production and increased their chip orders once again, which led to widespread shortages for automakers in China, the U.S., Japan and Europe. However, analysts have said that sanctions against Chinese technology companies have also played a role in the shortages.

The recent chip shortages in the auto industry have been called "extreme" and analysts predict that the automotive supply chains won't stabilize until next spring.

FutureCar Staff