Microchip Shortage Increasing Vehicle Lead Times

There is a global parts shortage for semiconductors and microchips used to control electronic components for a number of critical vehicle functions that is impacting vehicle production around the world.

This shortage is causing OEMs to reduce, or in some cases even stop, vehicle production, as they find it more difficult to procure semiconductors and electronics. As a consequence, this global shortage of semiconductors promises to further increase lead-times for affected vehicle models.

For example, during the week of Jan 25. 2021, production for the Ford Escape and Lincoln Corsair at Ford’s Louisville Assembly plants was stopped for the second time in the month due to the chip shortage. The plant was also down for the week of Jan. 11, 2021 due to the same shortage.

But this semiconductor and chip shortage is a global phenomenon. For example: 

• Subaru cut production at two auto plants – one in Japan and the other in Lafayette, Indiana. While there were production slowdowns, Subaru expects all production will be made up. Subaru said the year-end projected volume target is unchanged.
• Volkswagen has reduced production in China and Germany as it is having difficulty sourcing microchips for its electronic stability controls and ABS braking systems.
• Likewise, but for different reasons, Toyota reduced output of the Tundra at its San Antonio plant, and similarly FCA and Honda have reduced output at some of their plants due to the chip shortage.

What Has Caused this Shortage?

The shortage of semiconductors is occurring as a result of the companies that manufacture these products have allocated more of their production volume to meet the surging demand from the consumer-electronics industry, which saw sales of electronics products spike during the stay-at-home mandates created by the pandemic. 

While the auto industry buys a lot of semiconductors and electronics, it is small compared to what the consumer electronics industry purchases; the consumer electronics industry is a much bigger customer for these components than the auto industry. 

To put this in perspective, while there may be 100 million vehicles built per year worldwide, this compares to 1 billion smartphones manufactured each year. And smartphones are only one segment of the much larger consumer electronics industry. So, there is a lot of competition for a finite inventory of electronics and semiconductors that will continue until production can increase to meet demand.

The prediction is that the shortage of electronics chips and semiconductors might persist for the entire first half of calendar-year 2021.