This week, more hits keep coming. Mazda just announced it might have to cut output by 34,000 units this year due to a lack of chips. Nissan's truck factory in Mississippi has reduced its hours. And on Wednesday, GM said it will halt production at factories in Kansas, Canada, Mexico, and South Korea. In many cases, the automakers are trying to prioritize their more in-demand products, but as some of those closures show, that isn't always possible.
Why Is This Happening?
As you might expect, the problem has its roots in the coronavirus pandemic. As countries around the world imposed new public health rules, automakers cut output, and car dealerships and showrooms closed to stop the spread of the disease. As sales dried up, the OEMs scaled back orders for semiconductor chips, dozens of which go into every new car to control just about everything. Similarly, the chipmakers scaled back their production of these chips in response to dropping demand.
As Covid-19 restrictions have eased in certain places, demand for new vehicles has returned, but the automakers have a problem. In the absence of automotive orders, foundries and fabs switched their capacity to fulfilling other orders instead. And despite its size, the auto industry is actually a bit of a minnow when it comes to buying chips, accounting for roughly a tenth of global semiconductor fab output. Consequently, the bottleneck is expected to last for months.
Is Everyone Affected?Don't expect the problem to be constrained simply to the auto industry, either. On Thursday morning, Qualcomm warned that "the shortage in the semiconductor industry is across the board."
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