The Chip Shortage Is Getting Worse for Car Makers. Now the White House Is Weighing In.
A semiconductor factory in Dresden, Germany.
AFP via Getty Images
Semiconductor and auto manufacturers are headed to the White House Thursday to discuss efforts to ease car-production bottlenecks and deal with potential pitfalls related to the spread of the Delta variant of Covid-19.
Expected at the meeting, which comes as forecasts for car production lost to the chip shortage rise, are Detroit’s Big Three—General Motors (ticker: GM), Ford (F) and Stellantis (STLA). Representatives from Apple (AAPL), Micron (MU), Microsoft (MSFT) and Intel (INTC) were also due to attend.
The Biden administration is seeking information about the variety of problems surrounding the shortage as part of the the government’s effort to figure out ways to assist.
U.S. Secretary of Commerce Gina Raimondo and National Economic Council Director Brian Deese will hold the discussions. The administration has already convened other talks with chip companies and and other business over the supply shortages.
“We welcome today’s meeting and look forward to a productive discussion about the critical role of semiconductors to America’s economy, national security, and global technology leadership, as well as the need to strengthen our country’s chip supply chain,” Semiconductor Industry Association chief executive John Neuffer said.
Increasing transparency in the supply chain is one of the meeting’s goals. The government is also ramping up an early-alert system to help reduce the impact of plant shutdowns related to the pandemic, The Wall Street Journal reported.
If businesses buying chips order more than needed for their products, figuring that will help them get the amount they actually would use, it can create problems down the road. Inflated orders can give chip manufacturers an inaccurate idea of how many they must produce, and how to properly allocate the ones that are coming out of factories.
Because of long lead times, and the complexities of producing chips it has been difficult for the industry or government to alleviate the problems quickly. Building new factories, the obvious way to increase production, is no silver bullet. New plants are expensive, often costing billions, and there is no guarantee that future demand will sustain such construction.
The vehicle industry has been hurt especially hard by the shortage, as the number of chips used in for autos has steadily risen. Technologies that are more prevalent now such as assisted driving and hybrid engines typically use many more chips than older models without advanced features.
The automotive industry worldwide could lose $210 billion in revenue this year due to chip shortages and other supply bottlenecks, according to the consulting firm AlixPartners. That is twice the amount of losses estimated a few months ago.
Car makers will lose production this year of 7.7 million vehicles, according to AlixPartners, up from its May forecast of losses of 3.9 million.
The data provider IHS Markit last week slashed its production estimates for the auto industry by more than 6% for 2021 and 9% for 2022, due notably to lockdowns in Malaysia. The country produces 13% of the semiconductor used in the global auto industry.
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