Two Years Into Semiconductor Shortage: What’s The Current Status?

The Efforts For Recovery

Car manufacturers have been working closely with semiconductor manufacturers to solve this discrepancy. The majority of the world’s semiconductor production is located in Taiwan and China. Since the start of the pandemic, several new major production facilities have been established, with millions of chips being produced every day. However, the factories are still not working at full capacity. So, while the waiting periods for the semiconductors chips are reducing, they still remain long.

For example, in 2021, manufacturers waited on their semiconductors chips deliveries between 20 and 52 weeks, on average. This meant that some components could arrive a year later, which had been unthinkable before.

Currently, semiconductors chips can be delivered between 20 and 30 weeks. Furthermore, estimates are that by the end of 2022, the average waiting time will fluctuate between 10 to 20 weeks. This will still be longer than before the pandemic, but it offers a far better perspective than in 2021. The normalization of delivery times should take place in mid-2023, when all factories are once again working at full capacity.

Alternative Solutions

Nonetheless, the car companies have their hands basically tied, as there is not much they can do. Establishing their own semiconductor production facilities is a long and extremely expensive process: it will not help ease the current situation, but only salvage future ones.

The problem became so big that in late 2020 and early 2021, many manufacturers had thousands of unfinished cars in stock. Some even decided to salvage their low supply of semiconductors chips and sell their cars stripped of specific features, such as navigation, satellite radio and infotainment systems.

Some experts called for transferring the majority of production from Asia to America or Europe, but this solution is not viable. First of all, establishing these production lines would take ages, and while completed products might be delivered faster, their price wouldn’t be competitive because of higher labor costs. Secondly, these bigger factories would leave a high carbon footprint in the European climate of stricter environmental laws.

The Current Problems

Amidst all efforts to normalize the semiconductor supply, the car industry faced two new significant problems it wasn’t prepared for.

The first one was the Russo-Ukrainian War which started on 24 February. Ukraine is by far the biggest producer of neon gas, which is crucial in making semiconductor chips. Due to the all-out war, production was significantly reduced, and deliveries were made difficult. The gas is mostly transported by ships, and since the Russian fleet is controlling the Black Sea, merchant ships can’t reach Ukrainian ports or leave them. It is estimated that the global production of neon gas has been reduced by 25%, which directly affects the already tight output of semiconductor chips.

The second problem is the most recent Covid-outbreak in China, which happened in February of 2022. Even though the Chinese government does its best to keep the situation under control, several important industrial cities, and its main port in Shanghai, have been closed down in stringent measures to contain the spreading of the virus. As expected, the problematic circumstances immediately affected the factory output as well as transportation services. The Chinese ports are full of ships waiting for clearance, and several of them are loaded with semiconductors chips destined for car factories all over the world.

The Predictions

Car manufacturers still pay a significant price for the prolonged semiconductor shortage. While the supply for new vehicles has slowly been recovering, the car manufacturers can still not fully capitalize on this. The unexpected circumstances, like the Russo-Ukrainian War or extended pandemic in China, certainly will prolong waiting periods and limit the ability to supply the car factories with the necessary materials.

In general, it is estimated that both of those situations will eventually be resolved by the third quarter of 2022, making the normalization of the situation by mid-2023 once again plausible. However, this means semiconductors chips could still be in short supply for at least another twelve months. This is another year of prolonged deliveries, reduced levels of car features, rising costs, and pressure on car manufacturers and the car industry in general.