Buyers must collaborate to tackle automotive 'chip famine'

5 February 2021

Only industry collaboration can alleviate the "automotive chip famine" and bring balance to supply and demand, according to industry analysis.

Collaboration between automotive firms and the semiconductor supply chain “will allow all to get some supply, instead of a few getting all they want and others getting nothing”, said a report by IHS Markit.

Reduced and suspended production has been seen across the industry, including Volkswagen's German factories, Ford's US and German plants, and Daimler.

The main issue is that demand has exceeded supply of chips, known as microcontroller units (MCUs), which resulted from a combination of low capacity caused by pandemic disruptions and “stretched” supply lines following a surge in demand from the consumer electronics sector.

Phil Amsrud, senior principal analyst of semiconductors and components at IHS Markit, which has tracked the situation since April 2020, said: "Because the cause of these constraints is the result of increasing demand from OEMs and limited supply of semiconductors, it will not be resolved until both forces are aligned. 

“This is a case of balancing supply and demand, and with MCU lead times being 26 weeks or longer, the supply chain constraints will likely persist until at least the third quarter of this year." 

Carmakers should expect chip prices to jump by between 10-15% in the next few months, said the report.

Global vehicle production is expected to be 672,000 lower in the first quarter of 2021 due to supply disruptions, with China seeing the biggest impact.

IHS Markit expects to see changes in inventory management and sourcing strategies and, in the long term, increased risk management and visibility across the supply chain.

Mercedes-Benz maker Daimler and Porsche told the Financial Times they were responding to the crisis by looking at mitigation strategies, such as a “better early warning system” to expose weaknesses down the supply chain.

Oliver Blume, CEO at Porsche, said: “We do have to think about increasing inventory, but inventory costs money, so that is the last option to take.”

Ola Källenius, chairman at Daimler AG and head of Mercedes-Benz, added: “If it makes sense in the future to go into more levels of safety stock, it is something we would entertain.”

Meanwhile, US president Joe Biden has made an executive order to review the US critical supply chain to identify weaknesses and over-reliance on China, including across rare earths, other critical minerals, and semiconductors.

 Want to stay up to date with the news? Sign up to our daily bulletin.

Dunton, Brentwood
Competitive salary
Ford Motor Company
Homeworking, Abingdon with local and regional travel as required
£40,000 - £55,000 per year depending on knowledge and experience
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates