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Why car and electronics industry facing Chip crisis?

by Rinku Khumukcham
0 comment 3 minutes read

By Narvijay Yadav
There is a growing demand for new cars in the country, but the car makers are unable to fulfill it. Buyers have to wait to get the car of their choice. Semiconductor chip shortage is a major reason for the delay and uncertain supply, affecting over 169 industries, including electronics goods. Another reason is the increase in the prices of Copper and other raw materials. Just as there had been a shortage of coal in India in recent past, so has there been a shortage of chips. At the time of lockdown, people all over the world started working from home (WFH), due to which the demand for electronic products like computers, laptops, gaming consoles etc. increased. Chip makers, on the other hand, had reduced production. In the first three months of this year, the sales of computers saw a 26 percent increase as compared to last year. The Sino-US trade dispute and drought in Taiwan are also to blame for the chip shortage.
Car wholesale declined by 27 per cent in October, which is 16.7 per cent lower than the pre-Covid, October 2019 sales. The situation was even worse in September last, when wholesale sales declined by 41.16 percent year-on-year and nearly 26 per cent lower than in September 2019. In September 2020, amid the Sino-US economic dispute, the US Department of Commerce banned China’s largest chip maker, Semiconductor Manufacturing International Corporation (SMIC), making it harder for them to sell chips to US linked companies. Taiwan is the world leader in semiconductor production. This year there was a severe drought, which caused problems for the chip makers. A huge amount of pure water is needed to make chips. In addition, a fire broke out in March 2021 at a Japanese factory that supplies 30% of the worldwide supply for microcontroller units used in cars.
At the start of the pandemic, car manufacturers incorrectly predicted that sales would drop, canceled chip orders, and were unprepared to meet demand. Chip manufacturers had more commitments from the IT sector, which reduced capacity for car chips. Ford parked thousands of unfinished vehicles at Kentucky Speedway as the company waited for chips to finish assembling those cars. Toyota  planned to cut vehicle production worldwide by 40% in September 2021, while General Motors announced it would halt production of almost all cars at its North American plants for a week or two that same month. 
A modern car consists 1,500 to 3,000 chips. During the pandemic, cinemas were closed to contain the spread of the virus, forcing many people to turn to home entertainment during periods of self-isolation, fueling demand for video game consoles. Semiconductors, or chips, have properties that are somewhere in between conductors and insulators. Chips typically made from Silicon are used to supply power to a wide variety of devices such as cars, laptops, smartphones, home appliances and gaming consoles. The chip performs many functions, such as power display and data transfer, etc. Hence, the supply crunch is bound to have an impact on the sales of cars, fridges, laptops, TVs and other electronic equipment. Chip production cannot be increased on a short notice. Chip making is a complex process that takes months. It usually takes more than three months to make a chip. In such a situation, the problem will remain till 2023.

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