The current chip scarcity is a result of high demand and a lack of supply, to put it simply. This is related to the COVID-19 lockdowns that took place in the second quarter of 2020, during which time the demand for work-from-home technology exploded and automakers were forced to compete for the semiconductor capacity that was located in Asian foundries.
Additionally complicating matters, the COVID-19 Delta version severely affected downstream operations in South Asia, resulting in additional supply chain bottlenecks. Since many "back-end" operations, like chip packaging and testing, require more labor than wafer fabrication procedures, activity in Malaysia in particular is more susceptible to being impacted by public health initiatives.
Car manufacturers canceled orders at the start of the pandemic, but when production resumed around the end of 2020, there was no supply of semiconductors. Demand growth, particularly at the premium end of the auto industry where low borrowing rates were assisting affordability, made this situation worse.
The chip scarcity was initially sparked by the COVID-19 epidemic, but structural issues also played a role. With a significant shift toward automation and electric vehicles, the auto sector is changing. These call for additional chips, which puts additional pressure on an already overworked industry.
When Will the Chip Shortage End?
Due to difficulty in some end markets, including PCs, cellphones, and consumer electronics, where sales have been declining since March 2022, capacity is currently being released. Taiwanese foundries are starting to reallocate some of this capacity to the automotive and industrial end markets, which suffered during the COVID-19 pandemic as other industries gained market share. However, older processors, which are fundamentally different from those used in PCs and cellphones, are typically needed for automobiles.
Sandeep Deshpande, Head of European Technology Research, stated that "we're going to get a lot more semiconductor capacity in the second half of 2022 - we're nearing the conclusion of the supply constraint." "Capacity must still be approved for usage in the automotive sector, though. Can there be a proper match between the supply that is available and the qualification that is appropriate? The issue that is still present is this. I would think that by the end of the year, things could return to normal if this problem didn't exist.
J.P. predicts that the supply chain will start to recover in the second half of 2022. Morgan Analysis. In the fiscal year 2023, an increase in global auto production of 7% is predicted, with further gains anticipated beginning in the second half of 2022 as the chip scarcity gradually subsides. With automakers declaring intentions to hire additional staff and increase investments in their manufacturing facilities, Asumendi added, "We are witnessing that big OEMs are extending production across plants." To start up two more shifts this fall, Stellantis Vigo intends to hire more than 1,400 people. Additionally, the company declared that it would increase production at its Spanish operations and would manufacture the most recent Fiat Doblo there.
Volkswagen is expanding manufacturing in Germany and has committed $1.03 billion to revamp its Emden factory to produce electric vehicles. Additionally, production at its Zwickau electric vehicle (EV) factory is anticipated to increase after being halted by Russia's invasion of Ukraine. According to Asumendi, the sector has a promising long-term future. He continued, "We are beginning to see real signals of production stabilization in both China and Europe."