The latest data from the Society of Motor Manufacturers and Traders (SMMT) shows car manufacturing rose sharply in May, with 54,962 cars leaving UK factories as opposed to just 5,314 in Covid-hit May 2020. While it’s great to see manufacturing levels rising rapidly, May 2021’s figure is still 56.2% down on the number of cars produced in May 2019.
So, clearly there is still a long way to go to get back to pre-pandemic levels. The biggest obstacle to this happening is the global shortage of semiconductors which has come about as an indirect result of Covid-19.
What are semiconductors?
Semiconductors are tiny computer chips used in a vast array of devices and products. As advances in technology have led to the increased computerisation of cars, motor manufacturers now rely on them heavily for everything from infotainment systems to safety features. Although they are essential for all new cars, semiconductors are particularly important in the advanced technology used to produce electric vehicles.
Why is there a shortage of semiconductors?
These days, there is barely a device that doesn’t rely on the use of semiconductors. They are a vital component in everything from smartphones to TVS, cameras, fridges, washing machines and LED lightbulbs. When the pandemic hit, manufacturers of semiconductors were not only affected by the restrictions that halted then slowed production; they were also faced with unprecedented demand for the chips to be used in devices for work, home and entertainment during prolonged periods of lockdown globally.
In what should have been good news for car manufacturing, the last three months of 2020 saw forecast-beating demand for new cars. However, as suppliers and manufacturers tried to fulfil this unexpectedly high level of orders, the long delays in securing semiconductor chips became starkly apparent, with motor manufacturers finding themselves at the back of a long queue. This is partly because compared to electronic producers, car manufacturers are only a small customer to semiconductor producers, with Bloomberg estimating that fewer than 10 million cars are produced each year compared to over a billion smartphones.
How serious is the problem?
Unfortunately, this knock-on effect of the pandemic is proving to be far more than just a temporary blip, with Audi estimating that this ‘crisis upon a crisis’ will have resulted in as many as 10,000 fewer vehicles being built in the first three months of 2021 leading to the furloughing of over 10,000 staff. Meanwhile, Honda has been forced to pause production at its Swindon-based plant for the third time due to the crisis. Globally, the situation is no brighter, with Chinese Toyota, German VW and American Ford production lines also being adversely affected.
How long will the shortage last?
Some experts are predicting the problem will persist for up to two years, with the worst effects not being seen until the second half of 2021. This means the design of some cars may need to be adjusted so that any optional use of chips is eliminated, and the focus is on essential use only.
As soon as the pandemic hit, it was obvious that supply chain issues would arise, but few could have predicted the extent of this problem. As the beleaguered motor industry faces yet another serious challenge, it will need to show its usual resilience in the face of adversity once again.
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