Editor’s letter: Semiconductor shortage chips away at the industry

Reports suggest chip production could be anywhere between 6-20% down this year on last

Some believe the chip shortage could be over within months, but its impact will continue

How long will the semiconductor chip shortage crisis last? Depends who you ask.

The last public words of Thierry Bolloré in his role as Jaguar Land Rover CEO were to warn that the chip crisis would take years to resolve. 

Stellantis boss Carlos Tavares said recently he expected normality from the end of 2023. Hyundai has said it expects it to ease by the end of this year, but the Volkswagen Group is with JLR in expecting it to become the industry norm. 

So that's either a few weeks or a few years, depending on who’s offering their verdict.

Some clarity comes from a fascinating email that arrives each week from global analyst firm AutoForecast Solutions (who also produce an excellent report for Autocar Business each month) detailing exactly how many vehicles have not been produced that week due to chip shortages, and some commentary on when (if) things may get better. Even now, some 25,000-50,000 vehicles are going unbuilt each week.

"As the industry rolls through the fourth quarter of 2022, the losses continue to accumulate, but the year-end totals are coming into focus," said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. "With last year’s global losses tallying over 10.5 million units, this year’s loss of 3.6-4.2 million is an improvement but hides the larger issues of supply chain troubles, semiconductor and otherwise.

"More chip fabs are coming online, however the problems with shipping, international trade battles, and other disruptions still linger. On the surface, the industry can expect to lose another 2-3 million units of planned production due to chips in 2023, and that’s not including losses due to other reasons including global economic pressure.”

Yet perhaps it could all be over sooner than we think: an intriguing report in the Financial Times over the weekend on the chip industry noted a sharp decline in demand from the computer and mobile phone industries as consumer spending begins to tail off.

The FT quoted chip maker Qualcomm's financial boss Akash Palkhiwala, who noted as the company slashed a quarter from its revenue forecasts this quarter due to weakening demand: "It’s kind of an unprecedented change over a short period of time. We went from a period of supply shortages to demand declines.”

The same report stated chip production could be anywhere between 6-20% down this year on last, the kind of figure that will have many car company executives ripping their hair out. "We'll take them!", would no doubt be their collective cry after reading that figure. 

Whatever normality looks like after the chip crisis, the industry will have some war wounds from it. We hear some remarkable stories about car makers and the treatment they’ve received, and the Wild West situations they've found themselves in.

One car maker queried an order that didn’t arrive at the last moment, only to be told that the chip maker had sold it to another buyer on their behalf at a higher price, but not to worry, they’d get a cut of the deal… Never mind the cars on the production line ready for the chips.

Then there’s the story of a car maker who helped a chip factory out to improve its production processes, only to then have the favour be anything but repaid as it was moved no higher up the queue when output increased. 

Even if things do return to normal within a few months, the battle scars will be very real for a long time yet.