A chip shortage marred the global economy through 2021, with supply issues set to continue well into 2022. A surge in demand, driven by digital transformation and accelerated by the pandemic, will see the global semiconductor industry surpass 600 billion U.S. dollars in 2022. The automotive industry in particular has seen demand for chips grow considerably over the years, fueled by the increasing level of semiconductor content in modern-day vehicles—a trend that is set to continue into the foreseeable future.
Rise and fall of semiconductor demand during the pandemic
The automotive market was significantly affected during the pandemic. A decline in vehicle sales and manufacturing facility closures resulted in companies cutting back on their orders for semiconductors. This reduction in demand was quickly taken up by consumer electronics suppliers, hyperscale operators, and telecommunications providers who needed to satisfy online working and entertainment needs. When demand for new vehicles finally did return, carmakers were unable to source enough semiconductors, forcing them to restrict production once more.
With few semiconductors to spare, automakers have had to change their production strategies. Some car manufacturers have shut down plants producing cheaper car models, while prioritizing the manufacturing of expensive and more profitable models—although often without special features, such as heated seats. Despite these efforts, more than 11 million vehicles had to be removed from production in 2021. Consequently, global car sales in 2021 were down by more than 12 percent compared to 2019, resulting in a loss of some 210 million U.S. dollars in revenue for the global automotive industry.
No easy fix for the shortage
Although semiconductor manufacturers ramped up production of automotive semiconductors by about 30 percent in 2021 as compared to 2020, it will take time for the automotive industry to catch up with the backlog. Projections as to when the industry will stabilize differ. Automakers believe things will improve by the second half of 2022, mainly thanks to improved supply chains and added semiconductor production capacities. Semiconductor manufacturers remain cautious, however, and warn that despite production increases, the supply of automotive semiconductors may remain limited well into 2023.
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