Chip (semiconductor) Shortages and Cars
Chip shortages are plaguing the car world (and other worlds). But what are ‘chips’ and why are they in short supply?
As we find out, unlike at fast food chains, ‘chips’ aren’t a quick, cheap side order.
We open the packet and investigate chip shortages.
Firstly, what are chips?
Also known as semiconductors, ‘chips’ means computer chips. There billions in use as you’re reading this sentence.
Semiconductors make up many components in electronics.
‘Semiconductor’ refers to a material that partially allows electricity to flow through it. In other words;
- A conductor - allows electricity to flow freely, eg. copper.
- An insulator - does not allow electricity to flow, eg. rubber.
A semiconductor does everything in between a conductor and an insulator. This flow of electricity can be dialed up or down, halted in one direction or even turned on and off as required.
For example, temperature and light can both affect the flow of electricity in semiconductors.
It’s this controllability that allows semiconductors to act as tiny little switches.
(Hot chips. Some semiconductor components)
Why would you want tiny little switches?
A simple example of semiconductors at work is in an oven. You want an oven to heat up to and maintain a desired temperature for a set time. Semiconductors do all of this.
Semiconductors tell the oven to stop heating when it reaches your chosen temperature and then tell it to turn back on or increase heating when the temperature falls.
Another example of semiconductors at work is the screen you’re reading this sentence on. Who can tell the pixels on the screen to scroll up or down as you command? Semiconductors.
The chip shortage
Currently, the world is experiencing a chip shortage. Basically, demand is outstripping supply.
This is due to several reasons;
- Increased demand
- Production problems
- Supply chain disruptions
“Transistors, which are semiconductor devices, are now around 5 nanometers in size - a human hair is a massive 100,000 nanometers wide.”
As technology gets more advanced and sophisticated, devices require more semiconductors and microchips to make them work faster and process larger amounts of information.
For example, phones moving from 3G to 4G and now to 5G. This increase in data needs chips to process it all.
Resolution is another one.
Phone screens are a classic example of increasingly sophisticated technology. As the table below shows, phones are adding more pixels, which means more details and crisper displays.
It takes many more semiconductors to ‘fuel’ the screen on an Samsung S21 than a Nokia 5110.
Luckily, modern technology has made chips much smaller and denser.
Transistors, which are semiconductor devices, are now around 5 nanometers in size - a human hair is a massive 100,000 nanometers wide.
Manufacturers of semiconductors have not had a good run lately. The pandemic has caused lockdowns in areas containing factories resulting in staff unable to work
Earlier this year, a semiconductor producer in Japan experienced a fire which caused production to dramatically slow down. 23 machines were destroyed and the special ultra-clean room, needed for chip manufacturing, was filled with smoke and soot.
Furthermore, a storm in Texas shutdown semiconductor factories temporarily which has also caused problems.
Actual production of modern, dense computer chips takes expensive machinery and highly skilled workers.
Supply chain disruptions
The semiconductor industry is also experiencing supply chain disruptions. These have been caused by a few dramas.
Costs are up in the shipping industry. Sending a single 40ft container from Asia to Europe costs around US$17,000 at present. Pre-COVID, those costs were around US$1,500.
The relationship between the US and China, namely the trade war, has also affected semiconductor production through trade restrictions.
Materials needed for printed circuit boards (PCBs) are also lagging behind. Germanium, a key ingredient in semiconductors, is an example of a material in short supply due to increased demand.
A major problem in pretty much every industry is the pandemic. Lockdowns in areas with semiconductor factories have slowed production as have quarantine mandates in ports around the world.
An example is Malaysia, a country with more than 50 semiconductor plants. Lockdowns in Malaysia forced factories to operate at 60% capacity at times.
COVID has also pushed more people to work from home which has increased demand for new devices that can handle a smooth live Zoom call with multiple attendees.
Remote work, distance learning, gaming, entertainment and online shopping are all trending upwards thanks to stay-at-home orders and all demand connected devices.
Cars and semiconductors
“New car orders are coming with considerable waiting times, years (plural) in some cars.”
Cars and semiconductors have a strange relationship. In the past, when automakers competed more so for horsepower than computing power, semiconductors were steered towards the IT industry.
Modern cars have increasingly sophisticated technology and driver assist features like AEB (Auto-Emergency Braking), adaptive cruise control and even mood lighting and connectivity.
Today, ICE (internal combustion engine) vehicles contain around US$330 worth of semiconductor-laden technology while hybrids and EVs have up to US$1,000. Far more than cars of the past.
COVID also threw a spanner in the works.
Here’s a quick look back at cars and semiconductors since the beginning of the pandemic;
- Due to the pandemic, vehicle sales fall causing automakers to scale back production.
- Manufacturers cancel parts orders which include semiconductor components.
- In response, semiconductor producers look for new customers to make up the shortfall.
- Electronics, especially connected devices, see huge demand with online learning and working from home all around the world.
- Semiconductor producers focus on meeting this demand.
Late 2020 to Present
- Unexpectedly, vehicle sales bounce back. This catches auto and semiconductor makers off guard.
- Vehicles and consumer electronics continue seeing massive demand.
- A chip shortage ensues.
- Automakers halt or reduce production again.
The result of the chip shortage for the average consumer is time and money.
New car orders are coming with considerable waiting times, years (plural) in some cars. This is putting a squeeze on the used car market with some prices up 37% compared to pre-pandemic times.
How and when will the chip shortage end?
Most analysts agree that peak chip shortages will ease toward the end of 2021. However, it could take much of 2022 for the extra chips to work their way through the supply chain.
Governments around the world are well aware of the chip shortage. In mid 2021, South Korea announced a plan to spend US$450bn over the next ten years on new semiconductor manufacturing capabilities.
The US and the EU have also announced US$52bn and US$160bn plans respectively which aim to increase semiconductor production.
Unfortunately for consumers, new chip fabrication facilities take a while to set up so waiting times and prices almost certainly won’t come down before Christmas, 2021.