Automobile production still affected by chip shortage, supply forced to compete with consumer electronics

The Covid-19 pandemic that has been coursing through the veins of industries worldwide has also seen to the disruption of car production due to an insufficient supply of computer chips. The component shortage was foreseen last December as automotive parts suppliers Continental and Bosch warned of the looming supply shortage, a message reaffirmed by Volkswagen at the time.

At the beginning of this month, cuts in vehicle production were announced by Toyota, Nissan, Ford and Fiat Chrysler Automobiles (FCA) due to the shortage of semiconductors essential to production, Reuters reported at the time, while Honda had also reported early signs of impact upon its parts supply, requiring the turning down of Jazz production in Japan by around 4,000 units a month.

The latest addition to the group of automakers is Audi, who has announced that it will put more than 10,000 of its workers on furlough because chip shortage has slowed its production lines, Audi CEO Markus Duesmann told Financial Times. Production of the A4 and A5 will be affected, according to Automotive News Europe.

Volkswagen has said that it will be reducing its first quarter output by 100,000 vehicles as a result of the chip shortage; Audi will be doing all it can to keep the volume reduction to less than 10,000 fewer vehicles produced in the first quarter of the year, its CEO said.

Duesmann has called the situation “a crisis within a crisis”, as the drop in demand prompted carmakers to drastically reduce their order volumes for computer chips in the electronics-intensive architecture of cars today. However, demand jumped unexpectedly in the final quarter of last year as the market improved. Audi had its best quarterly performance ever thanks to a rebound in the China market, the report said.

The resurgence was unexpected amongst auto parts suppliers, who found themselves in competition with the consumer electronics sector for supply as new gaming consoles and smartphones went to market. This was compounded by carmakers’ switch to just-in-time manufacturing, which meant they no longer held substantial inventories for themselves, according to Financial Times.

Some computer chip companies such as TSMC have now prioritised the automotive industry, however the lead times involved mean that suppliers will have to wait several weeks before their orders are fulfilled, industry sources were quoted as saying.

The computer chip shortage might also affect production going into the second quarter of this year, “but only in the order in which we build cars,” Duesmann said, however adding that as things stand, Audi’s overall output for 2021 will not suffer as the automaker is set to catch up in the second half of this year.

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