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Global Chip Shortage Set to Worsen for Car Makers


Global Chip Shortage Set to Worsen for Car Makers

Global auto makers who had expected the semiconductor supply crisis to subside in the spring are now warning that chips will remain scarce for months while a second-half recovery is fraught with uncertainty.

The main causes of the worsening shortage are the widespread chip manufacturing disruption in Texas from the severe weather in February and a fire at Japan’s Renesas Semiconductor Manufacturing Co. Ltd. on March 19 that halted production, ripping a hole in the global supply. That has left car makers searching for chips needed for on-board electronics, safety systems such as automatic braking, and infotainment consoles.

The disruptions in Texas and Japan have exacerbated a shortage that began last year when strong demand from the consumer-electronics industry left car makers unable to accelerate chip orders to keep pace with a stronger-than-expected post-lockdown rebound in auto sales. Car makers had to stall or stop production and ration chips for the best-earning models.

“The semiconductor shortage and the impact to production will get worse before it gets better,” Ford Chief Executive Jim Farley said Wednesday. “Our second quarter will be the trough for this year.”

With auto makers now anticipating a slower chip-supply recovery than expected, they are having to adopt new mitigation measures.

Volkswagen AG , Europe’s biggest auto maker, said this week it would halt production of the Jetta at its plant in Mexico on May 3 and resume on May 20. Production of the Tiguan model would be shut down May 6 and restart May 17. The company said production of the new Taos model, which goes on sale in the U.S. in June, hasn’t been affected.

VW has already had chip-related shutdowns at plants in Emden, Germany and Bratislava, Slovakia, where a VW factory builds models for its VW, Audi, Seat and Skoda brands.

A fire at a Renesas chip factory in Japan, which reportedly supplies about two-thirds of all chips used by the auto industry, caused extensive damage.

Photo: RENESAS ELECTRONICS/Agence France-Presse/Getty Images

“We got through the first quarter reasonably well,” a spokesman for the VW brand in Wolfsburg, Germany, said. “The second quarter will be more demanding because of Texas and the Renesas factory that burned down. We’ll see the results from this in the second quarter.”

In response to the new chip shortages, Daimler’s Mercedes-Benz car unit has shortened the hours of up to 18,500 employees and temporarily halted production at two plants in Germany.

In the U.S., Ford said Wednesday it expects the chip shortage to cut $2.5 billion from adjusted pretax profit this year, the high range of the $1 billion-to-$2.5-billion estimate it provided in February. The company said the lack of semiconductors will force it to cut second-quarter production in half, but it expects the situation to improve after June.

Mr. Farley, the Ford CEO, told analysts that Renesas supplies about two-thirds of all chips used by the auto industry. The fire crimped supply for nine suppliers that source from Renesas and provide chips to Ford, Mr. Farley said. The full recovery of the semiconductor supply chain for auto makers could stretch to 2022, he said.

While auto executives are saying they believe the worst of the chip crisis will be over in the first half of the year, they also appear uncertain about how quickly the chip supply will recover in the second half of the year.

Ford CEO Jim Farley has said the company expects the chip shortage will be worse in the second quarter.

Photo: Nic Antaya/Getty Images

Renault CFO Clotilde Delbos said on an April 22 conference call that she expected the chip shortage would peak in the first half of the year, but that it remains difficult to predict any recovery because of spotty information about availability from chip suppliers, who can only provide information on supply looking out several weeks at a time.

“We’re only starting to have feedback from our suppliers on a detailed basis, component by component that we have to allocate by car, of the impact of the Renesas fire that took place a month ago,” she said. “We’re trying to find intelligent ways to prioritize the cars with the higher margin.”

Tesla told investors Monday that the company had done well through the chip crisis in part by “pivoting extremely quickly to new microcontrollers,” or computer chips that perform specific tasks. A shortage of microcontrollers was the main cause of the chip crisis last year.

Nevertheless, CEO Elon Musk said that the past quarter “had some of the most difficult supply-chain challenges that we’ve ever experienced,” adding that some of the effects would still be felt in the third quarter.

Harald Wilhelm, Daimler AG’s CFO, told reporters Friday that until the fire at Renesas and the weather-related shutdowns in Texas he had expected the chip shortage to abate after the first quarter. But he said he now thinks the supply won’t see a strong recovery until the end of the year.

“That means that production and sales could be impacted in the second quarter even more than in the first quarter,” he said.

Other European manufacturers including Jaguar Land Rover and France’s Renault SA have complained of cutbacks to production and sales as a result of the chip shortage, and many have slowed down or halted production at some plants. Some companies have given priority to production of more profitable models and cut back others until the chip supply stabilizes.

Stellantis NV, the French-Italian-American car maker whose brands include Fiat, Chrysler and Peugeot, is reverting to analog speedometers in some models, replacing chip-hungry digital board instruments.

The fire at the N3 building of Renesas’s Naka Factory caused extensive damage and halted production. Renesas said last week that operations at the plant had resumed on April 17 at about 10% of capacity and was expected to reach 100% by the end of May.

Freezing conditions in the U.S. in February caused semiconductor makers in Texas that provide chips for U.S. auto makers to shut down production to take pressure off local power grids. South Korea’s Samsung Electronics Co. , one of the world’s biggest chip makers, operates two plants in the state that analysts at Citi say account for 28% of the company’s global output.

Dutch chip maker NXP Semiconductors NV said at the time that it had to scale back production at its two facilities in Austin, Texas. The Texas freeze also hit the Austin operations of Germany’s Infineon Technologies AG .

And new uncertainties keep arising. In Taiwan, where a large number of chips are produced for applications in the auto industry, the worst drought in half a century is now threatening fresh disruptions for chip makers, whose factories require copious amounts of water.

Write to William Boston at [email protected]

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Published at Thu, 29 Apr 2021 14:59:00 +0000

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