“The structural shortage of semiconductors in the market is unlikely to be resolved until 2024,” said Volkswagen Group CFO Arno Antlitz. After the (hopefully already definitive) end of the coronavirus crisis, it was expected that chip deliveries would resume, but the gateway error – the problem still persists.
When will the situation calm down? At the earliest in 2023. But this will only be the beginning
The shortage of semiconductor components has affected every car manufacturer in the world. Concretely, the German group was recently forced to suspend production at several factories, including the main one in Wolfsburg, where Volkswagen is based. However, the crisis also affected production sites focused on the production of electric cars in Cvikov or Dresden.
The problem is that at the start of the corona crisis, the demand for chips fell markedly. However, after the resumption of production, their interest has increased sharply, so that suppliers from mainly Asian countries are not catching up on production. Let’s not forget that semiconductors are not only necessary for the production of cars – nowadays we can find them almost everywhere there is electronics, i.e. computers and telephones portable to ordinary LED bulbs.
The problem is also that older cars, for example from the 90s, usually needed a control unit, i.e. the engine one. Modern cars need more than one, and with every new technical convenience the number grows – whether it’s touch-operated infotainment or recessed door handles.
All of this just adds fuel to the fire. Another current downside is so-called centralization – the vast majority of chips are made in countries in the Far East, where the coronavirus has probably hit the hardest, despite natural disasters and fires.
The automotive industry is certainly gradually recovering from these heritage assets, but the complete remedy will logically have a certain inertia. “Even now, in 2022, we face a critical shortage of semiconductors,” Antlitz continues. “We will come out of the worst in the third, possibly fourth quarter of this year, with bigger improvements coming in early 2023.”
Of course, Volkswagen as a brand, and therefore the VW Group as a group, is not the only company affected by the lack of chips – this applies to virtually everyone, including BMW. “The chip shortage is currently stagnant at best,” said BMW Group CEO Oliver Zipse.
“I personally estimate major improvement next year at the latest, but that doesn’t mean chip demand will continue to be met in 2023,” Zipse concluded.
How can this be resolved?
“We set up a crisis cell and in some cases we had to either drastically reduce production or relocate it to other factories within our existing suppliers,” admits Antlitz of the VW Group. “However, relocating production does not solve our problem at all, or at least not in the long term.”
However, car manufacturers are partly responsible for the problem – the centralization of production in Asian countries is of course economically advantageous, but the car industry automatically becomes dependent on this region. Which has not been good for European producers.
Another problem is that traditional automakers use a lot of single chips. Of these, however, their producers do not have too high a margin, so they do not want to increase production now. The production of more complex, complex, modern and more expensive chips, which are used, for example, in smartphones, is much more lucrative.
On the other hand, vendors do not have an existential need to increase the capacity of these specific products, because the margins on their sales are not significant – the production of more complex (and modern) chips, like today’s smartphones is much more lucrative for them.
The solution may therefore be to replace the current chips with more modern and powerful chips, capable of managing, among other things, several operations at the same time. However, they will be more expensive. Europe could be helped by tech giant Bosch, which has pledged to support local chip production and has already invested hundreds of millions in the project.