Chip shortage could weigh on US automakers into 2022

HOUSTON (ICIS)–US automakers continue to adjust production schedules as the global shortage of microchips persists, and while some hoped the issue could be quickly resolved, sentiment is growing that the issue could extend into next year.

Earlier this month, President Joe Biden released a 100-day supply chain review, which analysed each segment of the semiconductor supply chain.

The findings led US Commerce Secretary Gina Raimondo to say the global shortage would be a “daily challenge” for the “next year or so”.

ICIS demand analyst Jincy Varghese and senior analyst Rhian O’Connor said the continued strong demand combined with other associated supply chain issues make ‘hopes of a speedy resolution to the problem now seem short-sighted”.

CHIP SHORTAGE
The global shortage of microprocessors, which are used to control the engine, antilock brakes, power steering, fuel-monitoring system and heating and air conditioning in modern vehicles, arose as economies began to reopen from coronavirus lockdowns, which led to a surge in demand.

A fire in April at a Japanese plant of chipmaker Renesas added to the shortage.

According to Reuters, Renesas accounts for about a 30% share of the global market for microcontroller unit chips used in cars.

The chipmaker said on Friday that production at the building that caught fire has returned to 100% capacity and that outgoing shipments should reach pre-fire levels around the third week of July.

The US Congress has introduced legislation (Facilitating American-Built Semiconductors Act) aimed at incentivising increased domestic production of chips with an investment tax credit, and providing funding (CHIPS for America Act) for semiconductor manufacturing, design, and research provisions.

While these steps are seen as more long term, the actions were lauded by the Semiconductor Industry Association (SIA).

“Senate approval last week of funding for domestic chip production and innovation in USICA marked a significant step forward, and the FABS Act would build on that momentum and help ensure the US can meet the strong global semiconductor demand and maintain leadership in critical technologies,” SIA Board Chair Bob Bruggeworth said. “We call on Congress to promptly pass this legislation, along with funding for the semiconductor manufacturing and research provisions of the CHIPS Act.”

SIA said the US share of global semiconductor manufacturing capacity has fallen to 12% currently, down from 37% in 1990.

PRODUCTION IMPACT
Varghese and O’Connor said the shortage of microchips has led to production cutbacks of over 1m vehicles, record low inventories and higher prices.

US autos sales were strong in April compared with a very weak base in 2020, the ICIS analysts said.

However, they were slightly down month on month and lower than the same level in 2019.

Inventory continues to fall, and producers are getting very good at turning out vehicles more quickly.

“Nevertheless, low inventory will curtail sales growth going forward as producers cannot manufacture enough cars to sell on,” Varghese and O’Connor said. “The problem is expected to persist throughout 2021, and we expect NAFTA production to be around 5% below 2019 levels.”

Longer-term, production in North America is expected to exceed sales due to capacity increases and some local models specifically marketed at the region.

The automotive industry is a major consumer of petrochemicals, which contributes more than a third of the raw material costs of an average vehicle.

Polymers used in automobiles include polypropylene (PP), polyurethanes, nylon, acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN), polycarbonate (PC) and styrene butadiene rubber (SBR).

Focus story by Adam Yanelli

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