At first, some US automotive companies had to close due to the absence of chips. Currently, even Japan and China have been hit by the shortage of automotive chips. The reduced supply of semiconductors is affecting vehicle companies.
A chip is the brain of many electronic gadgets like computers, TVs, cars, and gaming consoles. The low supply means most of those companies will have to lower their production process. Hence it might affect the economy in general because the supply of electronic gadgets will be below. As a result, prices will rise, tempering with normal market forces.
Electronic companies in China have found drawbacks hence reduced profit margins. According to recent statistics, the blame goes to the producers and suppliers of semiconductors chips. The raw materials have taken another angle by a rise in prices. When a company’s production costs are high, then it will automatically make a loss.
During June, Japan experienced a drop in output. In May, they had an almost 6% decrease in Gross Domestic Product. The outcomes are from machinery and car manufacturing companies. Despite Japanese company Toyota making a great profit in the US as the most selling vehicles, they underwent a fall in production. The car industry got affected by 19% due to the lack of automotive chips. The Ministry of Trade and economy in Japan said they are planning to work on the issues.
The supply of cars will be limited for some time. And prices will continue to rise if a solution is not found. So some orders that had been made have to be suspended for an unknown period.
Demand exceeds the Supply
The demand exceeds the supply of chips across the world. IN the competition, the vehicle industry is the most affected because some tech companies build their chips. As a result, the auto industry is predicted to lose almost $20billions in profit margins. According to Goldman Sachs estimates, most companies will have to close for an undefined period.
In early 2020, the coronavirus hit all over the world. Almost all the companies closed down their operations. Also, the semiconductors makers had to adhere to the rules by shutting down their activities. Most of their clients had to cancel orders. They thought the stock market would be lower when the pandemic reduced, a report by forbes.
At the same time during the pandemic, the electronic market of computers and other home devices made huge proof through the sales. Remote work made people companies purchase laptops and pcs in large amounts. Employees were to be provided with full electronic equipment to play their roles. Also, car sales increased over the lockdown period. Many people wanted to prevent public transport; therefore, personal; cars were their option.
In May, after the vaccine, the business opened up. Automotive companies opened with much energy to regain what they had lost. But due to persistence in shortage of chips, some CEOs have to suspend most of their activities.
How long to make a Semiconductor chip
A research analyst at Goldman Sachs, Toshiya Hari, said the shortage was due to a bumpy recovery on the supply side. He talks about the period that a semiconductor company can take to regain its output. These independent companies have to wait a little longer. The chip tool takes longer to purchase. The manufacturing process is also lengthy. Furthermore, a single semiconductor takes almost four months to be produced, a report by bloomberg.
According to experts, the third and fourth quarters will experience an ease in increasing the supply of chips. But it is difficult to predict the stock of semiconductors chips before 2022. The reduced laws on lockdown mean almost all companies are free to perform their duties.
The automotive industry was the most companies that canceled the order they had made before the pandemic. They tried to re-order n, and their effort was in vain. Other tech companies have taken a huge share of semiconductors, leaving 10% for automotive industries.
The used car will now increase in price. According to Yuzawa, second-hand cars sold twice the original price over the past six months. The price will not be reduced until the chip shortage has been rectified.