01 Nov 2022 -
 EV

Automotive shortages: what can engineers expect in 2023?

toyota cars

Modern cars use between 1,500 and 3,000 semiconductors, and EVs require roughly twice their combustion equivalent — that’s double the reliance on the electronics supply chain. Where will these chips come from in an already tightly constrained market?

While there are visible signs of supply-chain recovery, the outlook for Q4 and into 2023 remains uncomfortable for anybody involved in electronics procurement and engineering. VW’s Group Chief Purchasing Officer, Murat Aksel, is preparing for the ‘new normal’ and believes it’s going to get even more complex and challenging…

18 million fewer vehicles than expected 

The automotive industry has suffered the brunt of semiconductor and electronics shortages. In 2021, the crisis cost the industry as much as $210 billion in revenue, according to an analysis by consulting firm AlixPartners. More recently, insurer Allianz estimated the cost to the European automotive industry alone to be nearly €100 billion in 2021-2022.

How did we get here?

According to the Alianz report, “Bracing for tough times at the beginning of the pandemic, carmakers, and automotive suppliers responded with deep cuts in semiconductor inventories and orders. As demand for cars recovered faster than expected in the second half of 2020, the industry discovered that chip manufacturers had reallocated production capacities to end markets with booming demand, such as computers and data centers, leaving little capacity for the automotive sector. Nearly two years on from the first signals of a semiconductor shortage, car production remains far below its 2019 level, with a cumulated production shortfall of over 18mn vehicles globally.” 

Worse in Europe – with new international tensions

The situation has been comparatively worse in Europe where, unlike in China or North America, vehicle production fell to an unprecedented low of 13mn vehicles in 2021. After signs of improvement in late 2021 and Q1 2022, the production recovery was again held back by additional supply-chain tensions caused by lockdowns in the wider Shanghai region and Russia’s invasion of Ukraine.

What happens now?

The chip crisis continues to wreak havoc in most carmakers’ operations. More often than not, they are forced to turn to the same measures as before: reducing production, shutting down lines temporarily, or shipping cars without certain non-critical systems.

The main supply challenges involve microcontrollers and sensors, but this impacts all in-car entertainment, GPS tracking, parking assists, and controlled braking. There are small pockets of stock being released to the market, but it is a matter of making rapid purchase decisions to secure the stock at above-normal prices, according to market insiders.

Honda became the latest major automaker to be forced into some big production cutbacks: up to 40% production in Japan for some of its most popular vehicles. Supply chain issues and a lack of semiconductors are key reasons for the reduction.

Similarly, Toyota Motor is falling short of its average monthly plan production plan by 100,000.

A worrisome sign of what’s to come

In addition to Honda, Mercedes, Daimler, and Hyundai have announced production cuts in the last year due to a chip shortage that doesn’t seem to be going anywhere, despite automakers’ best efforts.

All of these reductions are worrisome that the chip shortage will continue to stymie production at the world’s largest automakers.

2023 – It’s going to get even more complex and challenging 

Murat Aksel, VW Group Chief Purchasing Officer

While there are visible signs of supply-chain recovery, the outlook for Q4 and into 2023 remains uncomfortable for anybody involved in electronics procurement, production, and engineering. While the extreme materials shortages of the past two years have eased, the shortage of specific automotive ICs still remains as chipmakers try to close the gap between demand and supply. 

Volkswagen believes the chip shortage will last past 2023, and the company is preparing for a ‘new normal’ in supply-chain crisis and says there will probably still be a structural shortfall in semiconductors up to and including 2023. Murat Aksel, VW’s head of procurement on the Volkswagen board, said, “With the new geopolitical issues if anything, it’s going to get even more complex and challenging.” 

Worse for the EV market

Electronics researchers, IC Insights, noted that the market share in the automotive segment is expected to continue to grow, reaching 8.5% this year and 9.9% in 2026. The driving force behind this growth is the myriad number of new sensors, analog devices, controllers, and optoelectronics being incorporated into most new vehicles. Moreover, the rise of hybrid and all-electric vehicle sales worldwide is adding to this forecast growth. 

Electronics have gone from being just 18% of a car’s cost in 2000 to 40% of its cost in 2020, and are projected to be 45% by 2030. The electronic component shortage caused purchases to significantly increase over the last two years, with the cost of many electronic materials increasing by 20-30%. A recent report by DigiTimes indicated that automotive component and module suppliers intend to raise their prices to reflect rising materials costs and other expenses.

Conclusion

The chip supply situation should sort itself out by 2024, if all goes well, but for now, to secure stock, it is a matter of making rapid purchase decisions and accepting above-normal prices.

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