As the global manufacturing industry is making a comeback after a yearlong break, the global technology sector is facing a major problem, that is, shortage of semiconductor chips. In the 21st century, the “chip” belongs to our everyday items like refrigerators and washing machines, as most of them have a “brain”.
According to tech blog TechRepublic, analysts believe that the shortage has been felt in the automotive industry for as long as two years.
Washington post in April published an article where Intel CEO Pat Gelsinger said that he thinks this is a couple of years until you are totally able to address it (supply issues). He said
Manufacturing of semiconductors is down because according to TechRepublic there is no return on investment on building boundaries with such demand.
Another problem is poor planning. According to the blog, as the manufacturing shut down in 2020, most of the buyers canceled orders, thus the suppliers turned to other markets.
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On the other hand, the demand is high, and analysts say that things would turn for the worst, as the difference between demand and supply will rise.
In recent research by credit rating company Fitch, the shortage will cost automakers 3.8 million units in lost production, or 5 percent of estimated annual sales in 2021.
According to data, the number of transistors mounted in Internal Combustion circuit chips has doubled every two years. Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.
Electronic parts in combustion engine cars today account for 40% up from less than 20% two decades ago. Chips account for a bulk of this increase, and the recent semiconductor supply issue will definitely impact car manufacturing.
According to the rating company, many automakers expect to face the hardest pressures in 2Q21, but shortages should gradually ease in 2H21 and 2022, helped by the Renesas plant returning online by end-May and operating at full capacity in early July.
However, program vice president of the semiconductor group at IDC Mario Morales said that the automotive and industrial market segments, which are still using legacy node technologies (semiconductor chip that is in shortage) “are not only at the back of the line and don’t get priority [for chip orders] like smartphones, PC or cloud infrastructure [providers] would get … it’ll take longer for them to recover.”
According to Harvard Business School professor Willy Shih, the big problem with the manufacturing sector is that the manufacturers are placing orders with multiple chip manufacturers as they aren’t sure which would be materialized.
“The semiconductor shortage will impact almost everything with a plug or a battery,” said Glenn O’Donnell, vice president, research director at Forrester. “We hear a lot about serious issues with automobiles and PCs, but consumer electronics, home appliances, medical devices, and even toys are suffering from chip availability.”
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So, all in all, the Pakistani automobile market now has a legitimate excuse to further increase the already exorbitant prices in the industry.