Global Chip shortage slows down big industries

A global chipset shortage has created panic among the world’s leading automakers, so much so that the companies have been forced to either halt or slow vehicle production.

The global chip shortage came as sudden news to many investors in industries that rely on the tiny, yet ubiquitous, electronic product. 

The delay, which is affecting products from cars to smartphones, has been looming for some time. Playing a pivotal role has been a series of external forces, including trade restrictions, offshoring and the global Covid-19 pandemic.

At the moment, all top carmakers from Toyota to Volkswagen, Daimler and GM are reeling from this global shortage of semiconductors. Ford is cutting production of its highly profitable F-150 pickup trucks, whereas General Motors said it plans to temporarily shut work at three plants in North America as chip shortages halt production lines. If the ongoing global semiconductor shortage will continue for a few more months, it will hit the carmakers who are already under pressure from regulators to pump more resources into electric vehicles.

Silicon chips are the backbone of the consumer electronics industry, but they are in short supply. Demand for these sophisticated chips have soared during the pandemic, as homebound consumers lapped up laptops, next-gen game consoles like the PlayStation 5 and Xbox Series X, smartphones and TVs. When the Covid-19 was its peak, carmakers slashed orders for the chip due to lower than expected sales. At the same time, chipmakers started diverting attention to meet the growing demand for chips used in the consumer technology space.

Automakers began warning of a semiconductor shortage sometime late last year after demand for vehicles picked up in many parts of the world following a shutdown of production plants due to the pandemic. However, the production has not been able to shift back to the requirements of the auto segment as quickly.

Like most chipmakers, Qualcomm outsources production to companies such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics. These suppliers are trying and so far failing to adjust to a vigorous rebound in demand. The auto sector has complained about this recently, but Qualcomm’s comments show the problems are broader.