On March 26, Stellantis announced that it would temporarily close five North American assembly plants starting April 5. The affected plants are in Illinois, Michigan, Mexico and Canada. At press time, the plants were expected to be closed through mid-April.
That same week, General Motors said it was idling its assembly plant in Wentzville, MO, for two weeks and extending into April a shutdown at its Lansing Grand River plant in Michigan. And, Ford Motor Co. said it was cutting production significantly at six North American plants, including facilities that assemble the company’s highly profitable pickups. The cuts range from cancelling overtime shifts to outright closures that could last one to three weeks.
U.S. automakers aren’t the only companies dealing with the issue. In April, Jaguar Land Rover said it was suspending production at two assembly plants in the UK due to the chip shortage.
Automakers have been coping with the problem for some six months now. Semiconductors are key components in today’s vehicles, running systems for infotainment, power steering, braking and engine control.
Several factors are behind the shortage. For starters, demand for semiconductors is surging. Thanks to the COVID-19 pandemic, sales of consumer electronics, such as tablets, game consoles and smartphones, have soared. Increasing demand for electric vehicles is also ratcheting competition for semiconductors. If a gas-powered vehicle contains as many as 12 computer chips, an electric vehicle might have 100 or more.
Ironically, demand has increased just as supply has decreased. In March, a fire crippled production at Renesas Electronics’ semiconductor factory in Naka, Japan. The company accounts for 30 percent of the global market for microcontroller units used in cars. Similarly, severe winter weather in Texas earlier this year forced Samsung Electronics, NXP Semiconductors and Infineon to shut down factories temporarily. Infineon and NXP are major automotive chip suppliers.
Regardless of the cause, the lack of chips is costing automakers a chunk of money. Consulting firm AlixPartners estimates the shortage will cut $60.6 billion in revenue from the global automotive industry this year. Ford predicts the shortage could lower its earnings by $1 billion to $2.5 billion in 2021.
Fortunately, help is on the way, albeit in the long-term. Four new chip factories are being built in the U.S., two by Intel Corp and one by TSMC in Arizona, and another by Samsung in Texas. And, President Biden’s expansive infrastructure proposal, released in March, includes $50 billion for the U.S. semiconductor industry. The funding would go toward production incentives and research and design.
That’s good. If there’s a silver lining to the pandemic, it may be to encourage U.S. manufacturers to increase domestic production of critical components, like semiconductors. U.S. semiconductor companies account for 47 percent of global chip sales, but only 12 percent of global manufacturing is done in the United States. That ratio needs to change.