#What's behind the global chip crisis?

08 / June 2021
What's behind the global chip crisis?

Seletron Performance

The pandemic has caused several problems by changing even the habits of people who were forced to stay at home by the Covid 19 Pandemic. They have found alternative ways to work (smart working) and spend time, causing a surge in demand for electronic devices. This has literally consumed all the reserves of microchips in the world market, forcing car manufacturers to stop and/or reduce the production of cars.

The pandemic has led to a global semiconductor and chip crisis, and now the automotive industry is also paying the price.

Nowadays, chips are essential in virtually all electronic devices ranging from cell phones, gaming consoles, televisions, and computers, and the automotive industry also depends on them. 

For example, the giant car manufacturer Hyundai Motor had to suspend production at its plant in Korea for a few weeks due to a lack of chips and electronic components.

Toyota has also already announced its decision to stop production in Kolin, east of Prague, for two weeks for the same reason.

But Audi, BMW, Mercedes, Volkswagen, and many other manufacturers are also experiencing or will be facing similar problems in the short to medium-term.

In addition to the pandemic, other events have also caused this crisis to escalate, such as the storms in Texas in February, which greatly slowed component production, the fire at Renesas plants in Japan in April, and the water problem in Taiwan, which is one of the world's most important semiconductor manufacturers.


What does this lack of chips mean for the auto industry?

The automotive industry has become increasingly dependent on semiconductors for various car features, from driver assistance and emergency braking to the new entertainment and comfort systems that make cars increasingly high-tech.

According to a Deloitte report, by 2030, electronics for cars, encompassing everything from LCD screens to in-vehicle systems, will account for 45% of a car's manufacturing cost.

The cost of the components and semiconductors used in these electronic devices is expected to rise 25% by 2030.

The chip crisis has forced many automotive giants, Volkswagen, Nissan Motor, General Motors, and Ford, to cut back on the production of less profitable vehicles.

Millions of nearly finished cars, complete apart from the chips, are waiting for these tiny semiconductors to be finished. A car is made up of thousands of components, but if even one chip is not available, the car cannot function.


How has the pandemic increased the demand for chips?

As Covid-19 has forced much of the global population to spend time at home, the demand for home electronics (tablets, laptops, video games, televisions, etc.) has increased.

Electronics companies rushed to purchase more chips to meet the growing demand for their devices. However, this has resulted in a shortage of chips for automotive companies.

Sanctions against Chinese tech companies have further exacerbated the problem.

By this point, all companies that manufacture electronic devices need chips, and they are frantically trying to purchase them to sustain inventories.


Why don't chip manufacturers make more?

The existing factories are already working at full capacity and would not be able to increase their production capacity. The alternative would be to create additional lines, but this would require significant investment in both time and money.

Chips are produced in highly controlled environments known as "fabs," where dust particles and unsuitable temperatures could damage semiconductors.

For chip manufacturers, building a suitable environment costs billions of dollars and takes nearly two years.

That's why the severe chip crisis cannot be solved quickly. 


The rush to source components

Like all car manufacturers, we at Seletron Performance are doing our best to stock as many components as possible, like chips and semiconductors, to better manage this global crisis and to be able to supply the whole range of our additional control units and meet the needs of our customers.

The most optimistic estimates indicate 6-12 months, while the most catastrophic ones even 2-3 years; these are therefore very significant timeframes that everyone in this sector must face.

Fortunately, we have always had dynamic warehouse management, and in addition to having ready-made products, we also have a substantial stock of components and semi-assembled boards. This allows us to manage peaks in orders or, as in this case, a global chip crisis.