Semiconductor shortage hammering automakers, costing billions in lost production and sales

The global shortage of computer chips continues to hammer automakers, forcing factory shutdowns and sapping sales and profits, with mixed views on when relief might arrive.

Seventeen auto factories in North America and Europe have halted or reduced production in recent weeks over the scarcity of the tiny components, according to Seraph Consulting, which is advising automakers on the shortages.

The shutdowns have affected plants in Michigan, Kentucky, Kansas, Mexico, Canada and Germany.

Ford, General Motors, Tesla, BMW and Daimler are among the companies that have reported continuing difficulties in recent days. On Wednesday, Ford CEO Jim Farley said that while the company is seeing some signs of improvement in chip supply, the situation “remains fluid,” with continuing delays from a semiconductor factory in Japan that is recovering from a fire.

“We do see the chip issue running through this year, and we could see it bleeding into the first part of next year,” John Lawler, Ford’s chief financial officer, told investors on a conference call.

Overall, the global auto industry will produce nearly 4 million fewer vehicles than planned this year because of the shortages, losing about $110 billion in sales, according to the consulting firm AlixPartners.

Global demand for computer chips is far outstripping supply, as an increasing number of electronic products require chips to function. While demand soars, supply is limited by a lack of semiconductor factories and by the months-long process needed to make chips.

Chip factories can cost $10 billion or more to construct because of their highly specialized machinery, an expense that few companies are willing to bear.

Estimates vary for when the semiconductor shortage will ease. Some say additional production of automotive chips from semiconductor makers including GlobalFoundries and Bosch is starting to help. Dan Hearsch, managing director of AlixPartners, said the picture for automakers could start to improve in eight to 10 weeks, allowing them to return to more normal production schedules.

“But that’s dependent on a lot of things continuing to go right, and covid variants have already had a bit of an impact on Malaysia,” causing slowdowns at factories there that conduct the final testing and assembly of chips, Hearsch said.

Pat Gelsinger, chief executive of chip-manufacturing giant Intel, has estimated the shortages could stretch beyond 2022.

Automakers and other manufacturers are also grappling with scarcity of other materials, including steel and plastics, as the coronavirus pandemic continues to cause gyrations in global supply and demand. Difficulty hiring enough workers is another obstacle for manufacturers, analysts say.

In some cases, the lack of computer chips and workers are related problems. When auto-parts makers couldn’t get enough semiconductors, some furloughed employees and then had a hard time getting them back amid booming demand for manufacturing workers, said Ambrose Conroy, founder of Seraph Consulting.

“You lay off people or you let people go home for a week, and then they don’t come back, the machines sit too long,” he said. “You lost your maintenance technicians, you lost your logistics people, you lost some quality people.”

In April, Ford predicted the chip shortage would cost it about half its planned production in the second quarter. On a conference call with investors on Wednesday, Farley said that worst-case scenario had not come to pass, though he didn’t say what the final production loss in the quarter had been.

General Motors this week reported continuing production cutbacks, saying it has reduced or idled production at 10 factories in North America this month. The downtime is set to continue into August at several of the plants.

German automakers Daimler and BMW this month warned that chips would remain scarce through the end of the year.

In the past two weeks, BMW has had production interruptions at several factories in Germany and Austria and at one in Britain, either cutting shifts or ceasing production for up to a week, spokeswoman Martina Hatzel said by email.

“In the last week alone, we have not been able to build more than 10,000 vehicles,” Hatzel said.

“We ordered the required volumes [of semiconductors] for 2021 at the appropriate time and expect our suppliers to fulfill these orders as stipulated by the contract,” she added.

Tesla, too, reported chip troubles this week, saying a lack of semiconductors is forcing it to choose between making cars or its Powerwall battery, which is used for home energy storage.

“We have a massive backlog in Powerwall demand,” chief executive Elon Musk said during an earnings call this week. “We use a lot of the same chips in the Powerwall as you do in a car. So it’s like, which one do you want to make? Cars or Powerwalls? So we need to make cars, so therefore, Powerwall production has been reduced.”