Global Chip Shortage Situation Is Likely To Improve Over Time

Key Highlights:

• Semiconductor shortage have impacted automobile industry the most
• Production levels of major automobile manufacturers have been slacked
• Automotive industry in India have found another way to tackle the shortage
• Improvement in the ‘shortage situation’ is expected to commence in Q2-2022

The global shortage of semiconductor chips has caused a pavement of risks and threats to industries worldwide, specifically electronics and automotive industries. There are speculations in the market about the improvement of chips supply in manufacturing different commodities. More realistically, the improving situation seems more likely to attain a snail-speed growth than a quick-paced resolution and development globally.

The automotive industry is going through waves on the shortage of chips and meeting the demand of their customers. Key manufacturers such as Volkswagen and BMW have already sliced their productions, while Toyota is producing lesser vehicles compared to the lesser 140,000 cars and trucks from September, cutting down almost 40% of their production.

Factors Narrowing Down Production Units

The pandemic of COVID-19 has to play a major role in disrupting the manufacturing of chips and assuring smooth trade flows of the commodity to other countries. COVID-19 halted the production of commodities while putting restrictions on logistics and shipping services. This caused a huge letdown in the semiconductor industry.

Taiwan Semiconductor Manufacturing Company (TSMC) accounts for more than half of the world’s revenue for semiconductors among the top semiconductor manufacturers. The Taiwan-based company also went through fluctuations in chips exports in 2020. Look at the export data of semiconductor chips, showing exports share value of TSMC so far.

Uncertainty due to the pandemic and tragedies in manufacturing units of chips caused several disruptions in the production processes. Texas’ NXP Semiconductor company struggled due to the extremely heavy winter storms, while Japan’s Renesas Plant faced fire — and heavy losses.

Surging demand in consumers for electronics pushed excessive use of chips in 2020, and the automotive industry, which had halted the production assuming “no sales” in ongoing circumstances, are facing a huge shortage in the microprocessor chips that carry on different functionalities in their vehicles such as navigation, display, etc.

Read More: Electric Vehicles Demand Is Going Up And Likely To Grow More

Signs For The Situation’s Improvement

The automotive industry in India narrowed its use of chips in the production of vehicles, focusing more on manufacturing lower variants. Manufacturers are optimising the lower variant models that don’t include features like touchscreen, power mirrors, music system, navigation, and even eliminating features of the infotainment system.

Indian automobile manufacturers have lowered the production of diesel vehicles and ramped up the production of petrol-based vehicles. Many automobile manufacturers are importing petrol-based engines, as diesel-based vehicles require more chip usage for engine monitoring. Below given India import data represents the approximate share value for exports of engines that are installed in petrol-based vehicles, and this country-wise trade data is retrieved from Market Inside.

With the improvement in the COVID-19 pandemic situation, the normal production levels persist in Malaysia for semiconductor chips, which, in turn, resulted positively for the majority of Indian automobile manufacturers. Production levels continue to rise in India due to the normal level of chip supplies from Malaysia. The below data represents India imports from Malaysia 2021 for chips. Data available from the month of January till August of this year is given below.

Our trade data experts reveals that reports from India and other foreign countries suggests that conditions in supply chains for chips are likely to improve during or after the second quarter of the year 2022. While a shortage of semiconductors might stretch further till mid-2023, improvement in trade flows between countries for chips supplies are likely to begin from the second quarter of 2022.