The semiconductor chip shortage could cause a shortfall in US vehicle production by as many as 1.27 million vehicles in 2021, according to the Alliance for Automotive Innovation.
The prediction falls in line with earlier predictions by other sources. Earlier this year, IHS Markit predicted the chip shortage would cut annual production by 1 million to 1.3 million vehicles; Alix Partners anticipated the shortage would result in between 1.5 to 5 million fewer vehicles produced.
Top Biden administration officials will hold a second summit with industry leaders on later today to discuss semiconductors, as a shortage of the chips continues to stall auto manufacturing and threaten jobs across the country. The meeting follows an earlier summit the administration called in February to address the supply shortage, but the situation has since worsened, with GM and Ford announcing Thursday plans to temporarily idle more North American factories that can’t get enough semiconductors. The GM shutdowns, lasting a week or two per factory, affect 10,000 workers.
In a letter to the Commerce Department, John Bozzella, CEO of the AAI, said that a recent survey of AAI member companies produced the figure. The AAI represents almost 99% of all manufacturers who sell cars and light trucks in the US.
“The chip shortage has forced a number of automakers to halt production and cancel shifts in the United States, with serious consequences for their workers and the communities in which they operate,” Bozzella wrote.
In the letter, Bozzella noted that the shortage was due to two effects of the COVID-19 pandemic: First, the commonly-reported fact that lockdown orders increased worldwide demand for lockdown, and second, that widespread auto production shutdowns in March and April 2020 led semiconductor factories (or “foundries) to move production resources into consumer-grade chips instead.
“The chips that are generally used in vehicles are not the same chips used in consumer electronics devices,” explained Bozzella. But semiconductor foundries are costly to run and maintain, and computer chip manufacturers commonly operate on contracts to keep production running as consistently as possible. When automotive factories shut down in 2020, the foundries changed their production lines to adapt to the whipsaw in demand.
And the chip shortage is only one problem facing the industry. The AAI also cited February’s severe storms, congestion in ports on the West coast, and the March Suez Canal blockage as “additional challenges” to the automotive industry.
Bozzella called for increased federal funding of domestic semiconductor manufacturing and specifically named the CHIPS for America Act and suggested that CHIPS funding, if the bill is passed, be used to increase production of automotive chips specifically.
Why is there a semiconductor chip shortage?
The shortage stems from a confluence of factors as carmakers, which shut plants during the COVID-19 pandemic last year, compete against the sprawling consumer electronics industry for chip supplies.
Consumers have stocked up on laptops, gaming consoles and other electronic products during the pandemic, leading to tighter inventory. They also bought more cars than industry officials expected last spring, further straining supplies.
Sanctions against Chinese tech companies have further exacerbated the crisis. Originally concentrated in the auto industry, the shortage has now spread to a range of other consumer electronics, including smartphones, refrigerators and microwaves.
To help mitigate the issue, Intel has announced it will invest $20bn to expand its US semiconductor chip manufacturing capabilities.