Ford Motor Co. shuttered its Louisville Assembly Plant in Kentucky for a week in January because it couldn’t get enough computer chips to build new vehicles. Analysts expect chip shortages to continue throughout 2021 but predict most of the impact will be in Asia and Europe.
Photo courtesy of Ford Motor Co.

Auto plants in the United States, Asia, and Europe have temporarily shut down as a global shortage of computer chips makes it impossible to complete production of some vehicles.

The chip shortage is mostly due to COVID-19. Basic, low-tech chip production has been disrupted in Asia for months, as homebound consumers have been purchasing smart speakers, gaming systems, and other consumer electronics that require the same types of commodity chips that control fuel systems and some safety equipment in vehicles. Launches of high-end computer graphics cards needed for new video games have also been affected by the chip shortages.

VLSIresearch, a company that follows the semiconductor market, published its first warnings about a potential auto chip shortage in October 2020, and has sounded several more alarms in months following. CEO G. Dan Hutcheson notes that automotive semiconductor sales dropped sharply during Q2 2020, but didn’t recover as quickly as automotive production did throughout the rest of the year, meaning automakers were burning through inventories of unused chips.

Oxford Economics Lead Industry Economist Stephen Foreman predicts that the U.S. market will be spared the worst of the shortages despite shutdowns already occurring here.

“We expect a 1 million-unit hit to global auto production in Q1,” Foreman says. “This will be a fraction of the 14 million-unit hit during the H1 2020 downturn. The U.S. auto market looks vulnerable because thin inventory levels reduce its ability to withstand this supply shortage. But the impact on U.S. GDP should be modest compared to Japan and Germany, which have a greater reliance on the auto sector.”

With chips in short supply, automakers are sending supplies to their most profitable, most important products. Ford, for example, shut down its Louisville Assembly Plant in Kentucky for a week where it builds the Escape small SUV, allowing it to continue full production of the redesigned F-150 pickup.

Chip makers have vowed to boost production as quickly as possible, but analysts warn that semiconductor production doesn’t scale easily. Chips must be produced in cleanroom environments, and commissioning a new semiconductor fabrication facility can take more than a year. Taiwan Semiconductor Manufacturing Co. (TSMC), a leading automotive semiconductor producer, blames COVID-19-related order irregularities for creating shortages.

“The shortage in automotive supply has become more obvious. At TSMC, this is our top priority,” TSMC CEO Dr. C.C. Wei tells The Financial Times. “The automotive industry needs a lot of semiconductor components . . . such as mature technology for sensors and power management. We are working with customers to mitigate the shortage impact.” https://www.ford.com; https://www.oxfordeconomics.com; https://www.vlsiresearch.com