How The Automotive Industry Dealing With The Semiconductor Crisis of Chip Shortage?
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How The Automotive Industry Dealing With The Semiconductor Crisis of Chip Shortage?

The automobile industry started facing the challenges of the semiconductor crisis after the COVID-19 pandemic. Due to its effect, many countries completely shut off commercial supply chains and production chains. The massive demand for electronic devices like mobiles, computers, and other gadgets that also need chip facilities rose. The loosening US-China ties also led to the chip shortage in the international market.

Another reason that affected the industry is the emergence of work-from-home culture since the onset of the pandemic. The education system also adopted technology to continue the progress of educating children. People started depending on gadgets and improvising vehicle functionality by including a touch screen music system for a car. It increased the demand for semiconductor chips at an exponentially high rate.

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The last two years mark a visible gap between the supply and the demand for equipment that needs semiconductors. The sales of various consumer goods and automobiles dropped initially in 2020, but the market quickly heightened later that year. E-commerce gained more popularity, leading people to shop at the tip of their fingers. People started relying on mobiles to buy food or car accessories online. 

What Is the Basic Importance Of Semiconductors?

Semiconductors are elements in the metalloid form that are the fundamental requirements of every microchip processor. All gadgets (like smartphones, television sets, internet connectivity routers, automatic processors, or many other devices) need a chip system. In addition, the vehicles also leap ahead with the improvisation of electronics. So, the semiconductor crisis will not stop any time soon. 

Every car has at least two to three dozen installed microprocessors that power the entire functionality of the vehicle. These processors work wonders in accessing the infotainment screens, managing fuel, and controlling the vehicle's stability. Many advanced and high-end luxury vehicles need more processors. There is an ongoing need for these micro parts; thus, the semiconductor crisis persists. 

Lacking the advanced capacity

 The semiconductors industry projected growth in greater productivity through consolidation in recent times. Although there is a steady growth of capacity, the percentage of sales growth of around 4% increased annually. The utilisation of semiconductors showed a constant rise in the last ten years. In 2020, the utilisation rose to almost 90%, which denotes the effect of full utilisation. 

This event was the perfect utilisation setup, as exceeding that rate would lead to increased lead hours. Due to that effect, the industry maximised the production rate by 180% from 2000. But the current high utilisation rate exhausts the total capacity leading to the semiconductor crisis. 

The tension Of Geopolitical Locations

The crisis of chips initiates the focus on the geopolitical tension with China. The United States of America wants to take the leading global position by withdrawing its dependency on Asian chipmakers. The US is currently trying to bring the industry back into their country. Again, the increased tension between China and Taiwan puts the global chip industry in crisis. 

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Fearing the effect of a shortage of chips, some consumer-electronics manufacturers started stockpiling microprocessors. It resulted in up to 10% demand for microchips in the open market, which is more than one-third of automobile chip sales. It caused a semiconductor crisis for all. 

Terms of Contract

The primary contracts for getting automobile parts are different from the other industries. Long-term bindings generally govern this type of contract and provide the facility to purchase orders exceeding 6 to 12 months. The chip sourcing time limit for the automotive industry is comparatively short-term amid the highly intricate and chiefly outsourced.  

The auto industry was highly reputable for maintaining a good supply chain in the past. The semiconductor industry depends on implementing longer-term contracts and conventional methods.

Limitation in Stock

The autos suppliers increased efficiency and lowered wastage to maintain a decreased inventory level. This practice leveraged the automobile industry. The reduction process in inventory levels dramatically benefits the companies. But, in times of shortage, this disrupts the supply system, causing a semiconductor crisis.

Many industries survived the crisis as they had a limited range of stocks, and most enterprises could not predict the shortage. 

5G Uprise and Overlapping Demand Of Chips

Semiconductor demand in the industry differs by its intersecting size in the automobile and technology industry. The chips' are of various small sizes, of which the most advanced can range from 7-14 nanometres. These kinds of chips are in high demand in the hi-tech leading technologies and the automotive manufacturer does not need them.

The expansion of 5G services requires a vast supply of radio-frequency enabled semiconductor chips and big node sizes as part of auto chips. The same goes for power electronic devices like booting up a PC or a server

It may sound unlikely that the global semiconductor crisis is about to go away soon. The factors like increasing demand for sophisticated nanochips and the complex manufacturing process of semiconductors are its prime cause. Amid the crisis, getting the service of new technology in the automobile industry is never a bar for the world population. At CarOrbis, you can explore the world of the latest automobile parts and accessories. 

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