Global silicon chip shortage hits car industry hard

Just when you thought things couldn't get any worse for the beleaguered COVID-struck car industry, a global shortage of computer chips is forcing car-makers to slash production and furlough staff.

According to the Financial Times, one of the biggest brands to be hit is Audi, which has admitted that due to a lack of chips it will make 10,000 fewer cars in the first quarter of 2021.

As a result, the German car-maker is being forced to furlough more than 10,000 workers while the supply of semiconductors catches up.

Speaking to the FT, Audi's CEO Markus Duesmann said the lack of chips had already hit suppliers of infotainment systems, driver assist systems and various crucial electrical components.

And without those parts, production has in some plants stalled.

The reason for the shortfall in chips is unprecedented demand from consumer electronic device-makers in the wake of the COVID-19 pandemic, responding to buyers purchasing games consoles, laptops and tablets at unprecedented volumes.

Strong sales in the first three months of 2020 was also cited as a factor as both manufacturers and suppliers were caught on the back foot, with the knock-on effect of late-placed orders and subsequent long lead times in chip production meaning component production dropped out of sync with car manufacturing.

As well as Audi, Honda says it too has been forced to press pause on the Honda Civic's production line next week in the UK – the third time in two months a bottleneck caused by a lack of chips has hit manufacturing at the Swindon plant.

Even Toyota's Chinese production lines have been struck, while Audi and Volkswagen have been forced to reduce the working hours of more than 19,000 workers in Germany to artificially slow production to allow the supply of chips to catch up.

In total, Volkswagen Group production is set to be 100,000 units less this quarter as a result of the chronic shortage, but the full impact of the lack of supply has yet to be calculated.

In the US, Ford's factory in Louisville, Kentucky, was idled last week, hitting production of the Ford Escape SUV and Lincoln models, while former Fiat Chrysler factories in Mexico and Canada have both sent workers home while production has been paused.

The reason why car-makers are suffering more than the consumer electronics sector is quite simply they're lower in the food chain when it comes to purchasing power.

In total, the entire car industry produces around 10 million vehicles annually whereas Apple, meanwhile, supplied 15 million iPhones to the US market alone in 2019.