If you’ve been looking for a new car and have noticed that some of the lead times are a lot longer than usual, then this may be the reason why!
At the moment, the world is facing a shortage of semiconductor chips, which are a critical part of every electronics product. As you can imagine, this has impacted a lot more than just the automotive industry including laptops, washing machines and even remote controls. Were you one of the many desperate to get the new PS5 but couldn’t because they sold out so quickly? These chips are used for more than you would think!
What caused the global car chip shortage?
This all stemmed from the sudden demand for personal computers and other electronic devices that people needed to work from home during the last year due to the pandemic. It makes sense that people needed new ways to work from home and also entertain themselves through the lockdown, with Nintendo profits tripling in the half year to the end of September 2020.
For the car industry, many companies cancelled their chip orders in anticipation of lower demand over the pandemic. However, they did not anticipate the massive bounce back, which then sent the global chip supply into a rapidly downward spiral. The semiconductor chip suppliers simply could not keep up with the sudden demand from car manufacturers as well as the continuously increasing demand in other electronic products.
It doesn’t look like this will get resolved any time soon as chips will likely continue to remain in short supply as the demand is higher than ever. In December, the Semiconductor Industry Association stated that the sales of semiconductor chips will grow 8.4% between 2020 and 2021, which is almost double the growth from the previous year. So we could be looking at 2 years before the balance between supply and demand is back to normal.
How does this affect getting a new car?
Can manufacturers are taking a big hit due to this semiconductor shortage. This is because the entire industry relies on these chips for almost everything including managing engines to driver assistance systems, and unfortunately when they bounced back and tried to reorder the chips, they were at the back of the queue.
Ford is expecting to make 1.1 million less cars this year. Jaguar, Land Rover and MINI all previously put their production on hold in the UK.
Some car manufacturers have adapted to the lack of chips including the Peugeot 308 which is now being built with dials as opposed to the digital display. Nissan has also made the decision to leave navigation systems out of many of their cars that would usually have them. Even Renault is no longer putting their oversized digital screens behind the wheel in certain models! So if you’re in the market for a new car, you might see some features changed by manufacturers, and longer lead times than normal.
Why can’t we just make more?
In an ideal world, we could just make more semiconductors chips to meet the demands, but it isn’t that simple. Manufacturing the chips themselves is extremely difficult. It would take years (and billions of dollars) to build one of the factories that produces the chips and it also takes over 3 months to create a chip itself through a complicated process. Craig Barrett, the former boss of Intel Corp. called these chips ‘the most complicated devices made by man’.
TSMC, who is responsible for manufacturing 80% of these chips used in cars, have made plans to invest US $2.87 billion to expand production at their plant in China. However, the additional production is only expected to see extra volume production later in 2022.
So putting everything into perspective, if chips take over 3 months to make, and car manufacturers are struggling to get their orders in for this time – factory orders are certainly seeing delays and this probably won’t end anytime soon. Don’t stress though - if you’re in a bit of a rush for a new car, there are always plenty of great lease deals in stock now for quick delivery!
Make sure to check LeaseLoco regularly as new deals, both factory and stock, are posted all the time.