Weekly Brief: Chip Crisis a Hint of Future Battery Woes?

Automakers joined tech companies and chip suppliers last week at the White House to discuss the semiconductor crisis that has hobbled the auto industry in recent months.

The goal was to gain clarity on the magnitude of the crisis and encourage dialogue and potential solutions. CEOs from a host of major companies were in attendance, including those from Stellantis, Ford, General Motors, Google, Microsoft, Apple, Samsung and Intel. It was unclear how much the summit could accomplish, however, given that this is the second time these CEOs have met at the White House since April, the crisis has only become bleaker.

Things took a further turn for the worse last week when semiconductor factories across Southeast Asia shut down because of a surge in delta-variant Covid cases in Vietnam, the Philippines and Myanmar. Automakers desperately need those chip suppliers to increase supply, an impossibility if they’re closed, and they need tech companies to divert semiconductors to the auto industry, which tech companies are now even more reluctant to do. Some analysts project the semiconductor crisis will cost carmakers almost $500Bn in lost sales between 2021 and 2022 and could last deep into 2023.

Additionally, hurricane season is wreaking havoc on existing inventory in the US. Hurricane Ida alone appears to have destroyed an estimated 250,000 cars as it battered the Gulf Coast and then rampaged through the Northeast. Many of those vehicles were brand new sitting on dealership lots. More hurricanes are on the way, including Hurricane Nicholas which last week pounded south Texas and caused flooding in Houston, one of the car capitals of America. Put it all together and no wonder we have surging inventory shortages and record car prices for both new and used vehicles.

It will be interesting to see what automakers do in the coming months to regain control of their supply chains and overcome the semiconductor bottleneck. One likely outcome is for automakers to push for more local production of semiconductors, closer to their factories and specifically designated for the auto industry. Modern automobiles are computers on wheels. Some have nearly 100 semiconductors on board. Securing local, exclusive supply thus seems like a necessary move.

Whether carmakers do that through political lobbying, business partnerships or personal investment remains to be seen. One tangible revelation that came out of the summit last week was that Intel is looking to ramp up production within the US and manufacture microsensors that are tailored for the auto industry. The US Senate has already passed a measure for $52Bn in emergency federal subsidies for the domestic manufacturing of semiconductors, but the measure still needs to pass the US House of Representatives.

In other news last week, Volkswagen broke ground on its first battery plant in China. The carmaker says it wants six new battery plants around the world by 2030, each located near one of its production facilities, to help speed its transition to electric vehicles. The facility in China will cost $164M between now and 2025. Paul Myles has the details.

Similarly, Toyota revealed plans to spend $13.5Bn on battery development between now and 2030. GM plans to spend $8Bn on two new battery plants in the coming years. Tesla has built gigafactories in California, New York and Shanghai. Elon Musk is on record saying he wants 10 to 20 gigafactories around the world. BMW and Ford led a recent $130M investment round in EV battery start-up Solid Power. The list goes on.

The goal here isn’t just to make batteries less expensive for automakers. It’s to avoid the same supply bottleneck that we’re experiencing with semiconductors today. In the next 10 years, most automakers plan to phase out ICE-powered cars and shift their lineups toward 100% electrification. In doing so, demand for battery packs is expected to grow at least tenfold. That could put pressure on supply chains that makes the current semiconductor crisis seem a mere bagatelle.

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