Car production could slow down due to chip shortage

Covid-19 may have slowed down automotive production earlier this year, but the industry has been picking up in recent times as sales of new cars has swelled, fuelled by consumers looking to travel in private vehicles instead of taking public transport. This is very much the case in China, but now, the automotive sector is signalling that production in the country may soon be unable to keep up with demand, and all because of a shortage of electronic chips.

The industry has signalled that a shortage of chips used in auto manufacturing could disrupt automotive production in China well into 2021, Reuters reports. Microprocessor and integrated circuit electronics have become an integral part of a modern car, handling everything from the management of engines to a slew of driver-assistance features such as automated emergency braking these days. The problem is, they come mostly from Europe, and the pandemic has dramatically affected supply.

German automotive component suppliers Continental and Bosch warned about the shortage of semiconductor components, and the message was echoed by carmaker Volkswagen. While production is being increased in response, levelling up that supply will take time.

Production line of the new factory.

“Although semiconductor manufacturers have already responded to the unexpected demand with capacity expansions, the required additional volumes will only be available in six to nine months. Therefore, the potential delivery bottlenecks may last into 2021,” Continental said last week.

Bosch said it too was seeing supply chain bottlenecks for certain components. “No supplier can elude this market development. We are in close contact with our suppliers and customers to maintain the supply chains as much as possible despite the tense market situation,” the company said.

Other chip suppliers indicated that a price hike was inevitable due to the shortage. In a letter to customers that was sighted by the news agency, Dutch automotive chip supplier NXP Semiconductors said it would have to raise prices on all products because it is facing a “significant increase” in the cost of materials as well as a “severe shortage” of chips. “To address the unforeseen increase in costs from our suppliers, we reluctantly must raise pricing on all products,” it said in the communications.

With vehicle production virtually dependent on automotive chips, automakers can only build cars if stocks of these are present. Volkswagen, the largest foreign automaker in China, said that it was closely monitoring the situation, but added that the country’s overall auto production could be interrupted as a result of the shortage.

“The chip supply for certain automotive electronic components has been affected due to uncertainties caused by the pandemic. This has led to a potential interruption in automotive production, with the situation getting more critical as demand has risen due to the full-speed recovery of the Chinese market,” a Volkswagen representative told Reuters via an emailed statement, referring to auto production for the country on the whole.

An industry source told the news agency that he expects that the shortage of electronic chips will impact China’s car production for a while, with automakers facing production interruptions in the short-term, but at different levels.

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