Chip crisis hits automobile industry, leading manufacturers cut production
What's the story
A recent development highlights how deeply technology is interwoven into other global industries. Leading carmakers Ford, BMW, and Honda have warned of production curbs due to chip shortages.
Consequently, customers would have to wait up to 12 weeks longer for their cars.
The chip shortage has already sent computer hardware prices through the roof and shows no signs of abating.
Root cause
Silicon shortage exacerbated by high demand, severe Taiwan drought
During the pandemic, factories that produced chips and electronics had to halt operations while consumer demand for gaming consoles, work-from-home computers, tablets, and smartphones shot up.
The short supply problem was further worsened by Taiwan's severe drought since water plays an integral role in silicon production, and Taiwan is home to the world's largest silicon foundry, TSMC (Taiwan Semiconductor Manufacturing Company).
Do you know?
Even modern gasoline-powered cars are heavily reliant on electronics
In cars, semiconductor electronics are vital components for fuel injection systems, cruise control, trip computers, tire pressure monitoring systems (TPMS), and infotainment systems. The New York Times reports that a modern car may easily have over 3,000 chips controlling various vehicle dynamics.
Details
Carmakers announce how production is impacted by chip shortages
In a short span of 12 hours, American carmaker Ford warned that chip shortages could halve its production for the current financial quarter. It also reduced its full-year earnings forecast.
Honda announced a five- to six-day halt in production at three of its Japanese plants in May.
Within the same time, BMW AG also slashed shifts at its factories in England and Germany.
Beyond estimates
Ford revises annual earnings estimate to account for production losses
Bloomberg reports that Ford expects its earnings to reduce by $2.5 billion this year due to chip shortages that are expected to continue in 2022. That equates to losing production equivalent of 1.1 million vehicles this year.
The company had initially estimated that the production shortfall would be a reasonable 20,000 to 40,000 vehicles.
Bearing the brunt
Chip shortage has also impacted the global smartphone market
NYT reports that Porsche has also been warning dealers in the US that customers might have to wait 12 extra weeks for new cars.
The shortages have also impacted India's price-sensitive smartphone market where manufacturers are trying to absorb costs and pass over a minimal burden to customers.
Samsung and Apple also admitted that chip shortages will have a short-term impact.