Frequent breaks in production: a lack of chips costs carmakers almost 100 billion euros

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Printed circuit board in a factory:

Due to the global shortage of chips, 3.9 million fewer vehicles could be produced this year than planned, according to a study

Photo: John Minchillo / AP

Stellantis CEO Carlos Tavares said last Wednesday that the automotive industry was hit hard and strong by the global shortage of semiconductors.

"The longer the crisis lasts, the harder it will be to maintain the industry's current business model," said the CEO of the now merged automaker Fiat-Chrysler and PSA.

Car manufacturers have long since encountered delivery problems where it hurts the most: directly in the factories.

That is likely to be expensive for the industry: due to the shortage of chips, around 3.9 million fewer vehicles will be produced worldwide in 2021, estimates the consulting firm Alix Partners.

That corresponds to a value of non-produced vehicles of around 110 billion US dollars (91 billion euros) - almost twice as much as the management consultancy estimated at the end of January.

The car manufacturers react to the bottlenecks by temporarily shutting down their plants - or by trying unusual solutions.

The Peugeot brand, for example, which, like Opel, belongs to PSA and now to Stellantis, will temporarily stop installing digital display boards in the 308 compact car from the end of May - instead, analogue speedometers.

In the first quarter, 190,000 vehicles could not be built at Stellantis due to missing parts, it was said recently.

VW in "crisis mode", Daimler protects models with the highest margins

Daimler suspended production of the E-Class in Sindelfingen for a few days in mid-May, prior to which the production lines in Rastatt and Hungary were temporarily idle. The Swabians apparently distribute the scarce components among their highest-margin models: "We manage to support the production lines that are currently extremely important," said Mercedes production manager Jörg Burzer recently. Production of the S-Class and the EQS, for example, continues without restrictions, and SUVs are also being built without downtime at the US plant in Tuscaloosa.

Due to the lack of chips, the Volkswagen Group has had to stop production lines and register short-time work several times in the past few weeks.

Volkswagen CEO Herbert Diess said recently that the company is in "crisis mode" because of the semiconductor shortage.

His group therefore expects around 100,000 vehicles that could not be built in the first quarter due to a lack of semiconductors.

The effects could become even more apparent in the second quarter, it was said recently from Wolfsburg.

The same also applies to the international competition of German car manufacturers: At Ford, General Motors, the Stellantis brand subsidiaries, Hyundai and Honda, production lines often come to a standstill in individual plants.

The US auto giant Ford calculates charges of around 2.5 billion US dollars for the shortage of chips this year.

Car manufacturers are struggling with a strategic error at the beginning of the corona pandemic

The demand for chips has been growing rapidly for years, but new factories cannot be built and commissioned so quickly.

The increasing demand for electric cars, in which even more semiconductors are used, is driving up the chip order quantities of the car manufacturers.

But semiconductor demand is also rising sharply in other industries: in consumer electronics, for example, which boomed during the corona pandemic.

But also for the control electronics that wind turbines, solar systems or smart grid solutions require.

And in addition, crypto miners have bought together large quantities of semiconductors to mine digital currencies.

Photo: Pablo Martinez Monsivais / AP

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The automotive industry has also made a strategic mistake: At the beginning of the corona pandemic, many car manufacturers canceled their orders from chip manufacturers because they feared a sharp drop in demand. When car manufacturers wanted to increase their semiconductor orders again in the second half of the year, it was too late: the large chip contract manufacturers had often preferred other orders - for graphics cards or game consoles, for example, which are currently enjoying huge sales.

This also showed how little market power the automakers have with semiconductor manufacturing giants like TSMC. Overall, just a tenth of the global chip market is accounted for by the global automotive industry. TSMC made 51 percent of its sales with contract manufacturing of smartphone semiconductors last year. Only 3 percent of TSMC sales came from the automotive industry, as a study by the management consultancy Roland Berger shows.

Nevertheless, most car manufacturers such as VW and Daimler expect an improvement on the semiconductor front in the second half of the year. So the crisis is far from over. According to Roland Berger consultants, the semiconductor shortage will continue to preoccupy the automotive industry well beyond 2021. The automotive industry's demand for computer chips will increase massively by 2025 due to the electrification and further development of autonomous driving.

The consultants therefore advise car manufacturers to set up their own sourcing teams for electronic components in the medium term and to standardize components more strongly.

In addition, automakers should rethink their current just-in-time production model for semiconductors and build larger buffer stores for parts, according to a Roland Berger study from mid-April.

Whether car manufacturers are ready to change their previous production model with component delivery in real time - that remains to be seen.

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