27 September 2023

What the global shortage of computer chips means for individuals

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James Purtill* says a “perfect storm” of demand and supply factors has created a global chip shortage.


Australians are facing longer wait times for new motor vehicles and consumer electronics due to a global shortage of computer chips.

Televisions, gaming consoles and smartphones are among the products that could be affected.

Dubbed “chipageddon”, the shortage is due to record COVID-related demand combined with drought, fires and snowstorms in different parts of the world slowing production.

This “perfect storm” has led to car manufacturers from Europe to the US mothballing factories and phone-makers delaying the rollout of new models.

So how’s it affecting Australians?

Wait times of ‘more than six months’ for some car models

The wait time for purchasing a new car in Australia has blown out to longer than six months for some models, according to the Motor Trades Association of Australia (MTAA), which represents thousands of dealers.

“Delays for some models have been pushed out to double the usual time, if not longer,” MTAA chief executive officer Richard Dudley said.

“We’re aware of delays for some models around the six months mark. And for some other models, it’s potentially longer than that.”

He added that the shortage had also meant delays servicing vehicles.

“If you can’t get hold of an electronic control unit, that might prolong the time it takes for a vehicle to be repaired,” he said.

James Voortman, chief executive officer of the Australian Automotive Dealer Association (AADA), gave a similar figure, which was based on surveys of dealerships.

The computer chip shortage is one reason used cars for some models are selling for more than new ones in Australia at the moment, he said.

Used cars have the great advantage of being available now, while a new car might be months away.

“We’re having used Landcruisers selling for more than new ones,” Mr Voortman said.

“All of these issues are creating an environment where there’s significant demand, but supply is not keeping up.”

What makes and models are worst affected?

Neither the MTAA nor the AADA would say which car makes or models have the longest wait times, other than that it varies significantly.

“It’s affected almost every automotive manufacturer in every market,” Mr Voortman said.

“Every vehicle make and model is different.”

Mario Morales, a technology analyst at global market intelligence firm IDC, said US and European car makers appeared to be worst affected.

“We haven’t seen the same level of tightness of supply in the automotive industry in Asia as in the US and Europe,” he said, speaking to the ABC from California.

Ford recently cancelled shifts at two US car plants and said profits could be hit by up to $US2.5 billion this year due to chip shortages.

Nissan is idling output at plants in Mexico and the US.

General Motors (which owns Holden) said it could face a $US2 billion profit hit.

Volkswagen has sent 10,000 factory workers home.

But Mr Morales said Asian car manufacturers have their own problems.

A fire at the Japanese Renesas factory, which produces a third of all the chips used in cars worldwide, destroyed equipment and will delay production for a month.

Toyota, Nissan and Honda are the worst affected.

“Without that, Toyota and the other players are doing OK,” Mr Morales said.

Car makers would be making sure their limited supplies of computer chips are going into the production of their most profitable models, namely SUVs and trucks (which are showing strong demand), he said.

Will car prices go up?

That’s unlikely, according to Mr Morales.

People who have lost their jobs and accrued debt during the pandemic will mostly be looking for cheap deals.

“In general, it’s hard to raise prices in an environment where consumers are still recovering,” he said.

Mr Voortman said prices were unlikely to go up, but they definitely won’t go down.

“There are probably fewer discounts being offered in the automotive sector,” he said.

What about TVs, computers and gaming consoles?

There are reports of shortages of TVs and other electronics in Australia.

Fairfax reported last month that electronics retailer JB Hi-Fi “warned shoppers to expect stock shortages on televisions and other electronics for the foreseeable future”, due to high demand and limited supply.

JB Hi-Fi declined to comment further when contacted by the ABC.

Sony and Microsoft have had to cut back production of their respective PlayStation 5 and Xbox Series X gaming consoles due to the chip shortage.

Samsung has warned it might have to postpone the launch of its next high-end smartphone to 2022.

“There’s a serious imbalance in supply and demand of chips in the IT sector globally,” Samsung’s co-chief executive said earlier this week.

So why is Samsung, which is one of the world’s largest suppliers of computer chips, unable to source enough chips for its own phones?

Samsung only manufactures some of the chips in its phones, Mr Morales said.

They outsource the less advanced chips, including the power management integrated circuit, the image sensors and the antennae.

In effect, Samsung might be forced to delay its phone because it lacks a single, relatively simple kind of chip.

“If you can’t get those parts, it doesn’t matter if you can get the other stuff,” Mr Morales said.

What’s causing the shortages for cars?

It’s a combination of high demand and inelastic supply (ie. it’s hard to produce more cars quickly), experts say.

A modern car typically has about 100 microprocessors controlling everything from fuel intake to windscreen wipers.

Without these chips, no new cars.

When car sales slumped early in the pandemic, many car makers cut production and cancelled their computer chip orders.

Their spot in the queue was eagerly taken up by consumer electronics makers, who were enjoying record demand thanks to government stimulus measures and people buying webcams, laptops, monitors and other devices to be able to work from home.

When car sales rebounded, car makers rushed to increase production but found themselves at the back of the line for computer chips.

“Towards the end of last year, consumers came back into the market and they came back in with a fair degree of enthusiasm,” the MTAA’s Richard Dudley said.

“You can’t simply turn that supply back on and fill demand.”

And this is when they began to panic, according to a recent story in The Washington Post.

Chip makers started getting frantic calls from big auto makers just before Christmas.

One chip maker said car company executives were telling him: “You’re killing me. You need to make more.”

By January, they were closing plants.

Why have some been affected worse than others?

Some Asian manufacturers saw the risk early and took preventative measures, but many European and US ones did not, Mr Morales said.

“Toyota forces suppliers to have at least one year of inventory on hand,” he said.

“Other auto makers were seeing the end of the world last year.

“They were willing to risk the supply chain in order to survive.”

Why not increase chip production?

Though they drive our modern world and shape our lives, computer chips are made in only a handful of factories, also known as foundries, around the world.

The current shortage highlights the fragility of this system and how easily production can be slowed by, say, a freak snowstorm.

The cold snap in Texas last month saw electricity shortages, which led to Samsung halting production at its Austin chip foundry.

Meanwhile, a drought in Taiwan (where the largest producer, TSMC, is based) has dried up manufacturers’ reservoirs.

A single computer chip requires up to 8,000 litres of water to produce, and the big foundries use thousands of tonnes a day.

On top of this, chip makers don’t have a big incentive to meet the orders of auto makers, Mr Morales said.

Auto makers need chip makers, but the inverse isn’t true.

“The auto market as a whole accounts for only eight per cent of the entire semiconductor market in terms of consumption,” he said.

Apple spends $US56 billion a year on chips, compared to the $US4 spent by the largest auto makers, such as Toyota.

When chip makers decide which orders to meet, they choose the biggest customers.

And even if they did choose the car makers, the process of etching billions of circuits onto a single wafer of silicon can take 26 weeks, or half a year.

As a result, chip makers can’t rapidly meet auto makers’ demands.

How long will the shortage last?

Some analysts predict the situation could continue for a year, but Mr Morales said it would “normalise” by the second half of 2021.

“There’ll be normalisation in the third quarter, with some of the models supposed to roll out in the fall [September] delayed for years,” he said.

Mr Dudley said the future was “relatively rosy”.

If Australians can’t buy some models at the moment, they’ll just buy them later, he said.

“People who are wanting to purchase new cars are normally quite patient,” he said.

“We have heard of reports where consumers are frustrated by extended delays, but that’s largely not uncommon across any supply chain at the moment.”

*James Purtill works at triple j Hack in Sydney.

This article first appeared at abc.net.au.

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