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News Article

Chip Shortages Continue to Hurt Vehicle Production: IHS Markit

By Alejandro Enríquez | Mon, 07/05/2021 - 21:02

Chip shortages remain a major concern for the automotive sector. While sales and production begin to pick up from the fall they faced last year, continued supply shortages could hinder the industry’s recovery. Last week, IHS Markit estimated that global light vehicle production was up by 15 percent during 1Q2021 and the firm forecasted 50 percent growth year-on-year during 2Q2021. However, "as the automotive industry recovers from the pandemic, it continues to be challenged by a series of supply chain constraints," noted the firm.

Semiconductor shortages have deeply influenced automotive production both worldwide and in Mexico, with North America being particularly vulnerable. "In the first quarter (of 2021) we started to see major disruption because it became clear that supply chains were out of sync and semiconductors were not available to support higher levels of vehicle demand," says IHS Markit. Because of the pandemic, semiconductors had been moving to other industrial sectors, including consumer electronics, which also influence short availability for automotive manufacturing. An estimated 1.4 million light vehicles were not built globally during 1Q2021 due to these shortages

Supply disruptions in 2Q2021 continued to bring challenges to the sector as fires in Japanese chip manufacturing facilities and Texas’ extreme weather conditions stressed chip availability. While the circumstances might be challenging, the forecast is not as harsh as it was earlier in the year. IHS Markit expects "continued disruption but not to the scale seen in the first or second quarter. We expect an improvement over the first or second quarter because the situation is becoming better understood and great efforts are being made to enhance visibility within a very complex supply chain." GM's and Toyota's strategies to oversee the situation point to a more optimistic scenario than in the previous quarter, says the firm. However, "there are still mixed signals and it is too early to sound the all-clear.”

"Automotive suppliers impacted by the shortage of semiconductors are expected to improve in the third quarter. In the with the fourth quarter, it is expected for supply begin to recover and match demand. However, IHS Markit estimates suppliers’ capacity to keep up with demand and begin filling the backlog, will only be seen until the first quarter of 2022," says the firm.

Earlier this week Mexico’s Minister of Finance, Arturo Herrera, announced that chip shortages could put pressure on consumer prices for quite some time. “We are going to have this type of pressure for the next two years," he said. Although the automotive industry may be exempt of the circumstance, Herrera estimates that the prices for other consumer goods can increase. Semiconductors account for 45 percent of the total price of an ICE vehicle, according to Deloitte. But a hybrid electric vehicle can contain up to 3,500 semiconductors.

Photo by:   Christian Wiedeger
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst