Weekly Brief: Unconnected Cars Come into their Own Amid Semiconductor Crisis

Commentary By Andrew Tolve

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23rd August 2021

The global shortage of semiconductors continued to wreak havoc across the automotive industry last week.

Semiconductors, which enable technology like in-dash infotainment and advanced driver assistance systems, have been in such short supply that many carmakers, including General Motors, Ford, Nissan, Daimler, BMW, Volkswagen and Renault, have been forced to alter manufacturing targets, idle factories and furlough employees. Now add Toyota to the list.

Toyota announced last week that it will slash its production output by 40% in Japan and by 40% to 60% in North America in September, leading to a manufacturing shortfall of 60,000 to 90,000 vehicles. It’s a significant downturn for Toyota, which prides itself on supply chain excellence and whose prowess at managing manufacturing outputs allowed it to continue meeting projections over the past year while much of its competition struggled to hit targets. Toyota hopes to return to 100% production by October and doesn’t expect to reduce staff between now and then.

In addition to Toyota’s cutbacks, Ford announced that it will stop all production of the Ford F-150, the most popular vehicle in America, for a week, starting today through the end of the month. GM will halt production of numerous makes and models for the same time period. Affected vehicles include the Bolt and Bolt EUV, the Chevrolet Traverse and Buick Enclave, the Cadillac XT5 and Cadillac XT6 and GMC Acadia. Volkswagen said that it may need to reduce production even further this autumn after already slashing targets owing to the semiconductor shortage.

Auto stocks were down across the board last week as a result of the news. Toyota’s shares fell 4.4%, VW dropped 3%, Ford fell 2%. Don’t look for these problems to go away anytime soon.

The global shortage of semiconductors stems from the start of the pandemic, when automakers cancelled orders en masse during the first three months of lockdown. Factories were shuttered at the time; employees were furloughed; consumer demand shriveled to a shell of its former self. Fast forward three months to summer 2020 and the pendulum swung wildly back in the opposite direction. Automakers found themselves inundated with demand for new cars because of diminished interest in ride sharing apps like Uber and Lyft and fear of public transportation like buses and subways, where Covid could spread more easily.

Semiconductor manufacturing plants struggled to keep up, especially as staying at home and working remotely drove up consumer interest in smartphones and other digital devices that rely on semiconductors. Tack on the fact that a number of semiconductor plants around the world were dealing with pandemic shutdowns themselves, as well as outages owing to drought in Taiwan, freezing temperatures in Texas and a fire at a plant in Japan, then a full crisis was afoot.

Experts expect shortages to persist for at least another year. What should we expect in the meantime? Longer waiting periods for new cars and more expensive sticker prices to drive them off the lot when they finally show up. This in turn will continue to spike the cost of used vehicles. So, if you’ve been waiting to sell that old clunker with no in-dash infotainment or any other semiconductors to speak of, now would be an excellent time to pull it out of the garage and put it up on the block.