What Does the Semiconductor Chip Shortage Mean For Cars

Semiconductor are the heart of every electronic item that we use. Our life today is highly dependent on electronic items. Since the world has gone online, the importance of electronic items has exponentially increased. Now the higher the demand of any commodity, the greater are the chances of its shortage and the more expensive it becomes.

Since the coronavirus pandemic has begun, the majority of the world has gone online. Since it is unsafe to go outside and meet people in person, online meetings are the only solution. The pandemic has also caused a large number of industries to shut down.

This has caused a huge gap in supply and demand. The demands have increased so much, and the supply, instead of increasing, has been forced to reduce because of many constraints. All of the factors have together caused a shortage of semiconductor chips. The semiconductor chips are the heart of electronic items and without them, no electronic appliance can be manufactured.

This has affected a large number of industries and one of them is the automobile industry. Due to this shortage, the supply of new cars has been disrupted. We will be discussing in this article the reasons for this shortage, the industries that it has affected and how will it impact the sales of new and used cars. So let’s dive in.

What is Actually the Shortage and Why Has It Occurred

Semiconductor chips are used in the majority of industries these days. But manufacturing these chips is a separate industry. The manufacture of these chips requires silicon and then complex processes of doping and making the semiconductor to chips follows.

The pandemic has disrupted the operations of every major industry. The operations of the industries are starting to come back to full swing, but still, they need time to fulfill the demands.

Supply Chain Disruptions

Due to the coronavirus pandemic, the global supply chains have suffered immensely. The supply chain industry comprises transport by sea and air. Both of these means are used to deliver goods from the producers to their consumers. Due to the pandemic restrictions, this industry has also suffered greatly. Ocean freight is a major means of transportation of semiconductor chips.

This means it has been facing restrictions and overloads. There has been a shortage of shipping containers and shortage of personnel. This resulted in significant reduction in the amount of cargo that has been transported. This has also caused shipping companies extra costs to meet the demands. The air freight industry has also been overwhelmed with the delivery of covid vaccines.  

Production

Because of travel restrictions, the number of air passengers is seeing a historic dip. This means that there are lesser planes to deliver the goods. This has also contributed to the shortage of semiconductor ships. Global production has also seen its own challenges. Shortage of personnel is a challenge across this industry also.

There have been multiple incidents of fires in the manufacturing facilities of major producers of the semiconductor chips. Some geo political restrictions have also caused producers to limit their supplies. Some companies cut down their demand during the start of the pandemic, and now when demand has increased the producers have restricted supply to their big customers with whom they have prior reservations.

Electric Cars are the hardest Hit

The electric cars are the most potent alternative to the fossil fuel powered cars. This is a developing industry and has seen a rise in recent years. The electric cars do not produce any carbon emissions and run on green energy. However, they require semiconductor chips for almost all of their functions.

From autopilot to the electronic fuel level indicator, everything requires semiconductor chips. This has caused them to suspend production and has caused a gap in the supply demand balance.

Some carmakers have now resorted to skipping some features which require lots of semiconductor chips. This industry is already a developing industry and their supply has been disrupted. This raised serious concerns for the future of this industry. The demand for electric cars is increasing day by day, but the producers are unable to meet the demands.

The Demand for Fossil Fuel Powered Cars is Increasing

The semiconductor chips shortage has caused disruption in the supply of new cars, most of which are electric. This has seen people turn towards the traditional fossil fuel powered cars. The used cars industry is seeing large increases in demand. This has also caused a gap between supply and demand, as the vendors don’t have enough cars to sell to people.

The export of Japanese used cars Toyota has also seen a significant increase in demand. This has also caused a rise in the prices of the old cars. The old car vendors and exporter are now facing huge demands and they are struggling to keep up with the high demands. Finding and acquiring inventory to supply the demand has become a challenge now.

The used cars industry depends on acquiring inventory and does not have a steady supply. The introduction of electric vehicles in the market had led to a decline in sales of used cars. But now because of the global semiconductor chips shortage the used cars industry is seeing a rise in demand.

Some carmakers have now announced that they are going to bridge the supply and demand gap by not taking the conventional shutdowns that they used to take during the summer.