The Corona Virus pandemic has wrecked everyone and everything out of order and its aftershocks are yet to be tackled, with it resulting in the global semi-conductor chip shortage which has taken the steam out of the auto industry which was already reeling due to the lockdowns and sales drop.
This global chip crunch is threatening to de-rail the sales growth seen by the auto manufacturers as nearly every manufacturer in the world was affected by this global supply shortage and they are forced to reduce production, deal with angry customers waiting for their vehicles and never-before-seen waiting periods.
How did the global-chip shortage start?
The advent of the pandemic pushed the world towards uncertainty as it was an uncharted territory for everyone. We witnessed lockdowns where the world came to a standstill with no vehicles on the roads and no crowds in the streets.
The governments asked people and their employers to work from home which will help reduce the spread of the virus. Due to this new structure of working from the comfort of their homes and lots of people with free time on their hands wanted something to pass their time comfortably.
Typically, the people switched towards smartphones, laptops and TVs, which resulted in an increase in the demand for semi-conductor chips from these industries. The global chip suppliers saw this as a business opportunity as the demand for chips to be supplied to the auto industry went down drastically due to the factories being closed, thus these companies altered their manufacturing and supply chains to focus on fulfilling the high demand from the electronic and technology devices.
Since everyone from students, to teachers, to office workers, to businessmen everyone wanted new devices to use during the pandemic the chip supply was driven towards these companies and when the lockdowns were lifted the supply chains couldn’t be changed in time as the demand for auto sales recorded massive growth. The auto majors frantically demanded more semi-conductor chips for their vehicles which couldn’t be completed by the small and limited number of chip suppliers thus resulting in long waiting times and delayed productions in factories.
Effects of the chip shortage globally:
The chip shortage which affected the auto-industry in the start is starting to affect other industries too with the demand far more than the production and supply capacity. Globally many industries are struggling due to this ongoing chip shortage and this has taken a toll on businesses around the world.
With the global shortage of semi-conductor chips causing more than USD $200 billion loss in revenue for the auto industry in 2021. This number is huge considering the fact that the auto manufacturers were already struggling due to the restrictions imposed during the pandemic which resulted in closure of factories and record low sales.
In India the auto industry reported 18% decline in sales in November 2021, registering three consecutive months of double-digit sales decline and with the supply not yet to the demand expect more records to tumble in terms of negative growth in the auto market.
The manufacturers are not the only one affected by this because the burden fell on the buyers too with the companies’ increasing prices of their existing models and with newer models having long waiting times the dealers are making hefty profits by selling the cars at a premium over the ex-showroom prices.
When will this supply crunch be over?
Various estimates suggest different timelines for this chip shortage to be over but the general consensus is that it will take another year or so for the supply chains to reach their pre-covid levels and with companies like IBM, Samsung announcing plans for new chip manufacturing factories the demand for the semi-conductor chips is expected to be met but for the near future the going is tough for the manufacturers with especially the auto industry which needs some breathing space after the near-fatal grip of the pandemic looked to throw the industry off track.