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News Article

Chip Shortage Causes Problems for Consumer Prices

By Cas Biekmann | Thu, 07/01/2021 - 15:25

An ongoing crisis in which demand for semiconductor chips starkly outpaces supply has already been named ‘the 2020-2021 global chip shortage’, which particularly affects electronic consumer goods and automotive manufacturing. Mexico’s Minister of Finance, Arturo Herrera, announced that the shortage 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.

At the onset of the COVID-19 pandemic, global car manufacturers, including those in Mexico, had to cut back on manufacturing. This resulted in a significant decreased demand for chips. After all, the fast-growing transition automakers make toward a connected, autonomous, shared and electric (CASE) mobility has been a key driver for semiconductor chip production. Certainly, the pandemic did not slow down the need for electronic consumer goods such as webcams, monitors and computers. In fact, their demand increased significantly due to a greater need for connection and advancement in digital home schooling and telework, among other reasons.

The chip supply chain did not remain scot-free either. In March, a fire at Renesas Electronics' manufacturing plant in Japan, a company that supplies almost a third of global microcontroller chips for cars, further worsened the situation. The company announced that reaching pre-fire production levels would take between 100 to 120 days.

With chip production dropping and demand increasing, supply began looking rather precarious. Automotive manufacturers soon realized they could continue to produce, but saw that consumer goods manufacturers had already bridged the gap in demand they had created with their short break. Automotive giants in Mexico such as Volkswagen, Toyota, Ford and General Motors now see their manufacturing possibilities restricted. Overall, the situation does not bode well for consumer prices, which benefit from a supply abundance.

Experts predict that the shortage can be resolved in the near future, despite the challenges faced by companies wanting to ramp up chip production. “Trying to reconstruct an entire supply chain from upstream to downstream in a single location is just not a possibility," David Somo, Senior Vice President of ON Semiconductor, told Reuters. "It would be prohibitively expensive." Moreover, the economics of such supply chains have not necessarily improved despite the shortage. Nevertheless, Q3 and Q4 of 2021 will see much of the pressure on supply alleviated, although it could still take most of 2022 before the supply of chips is incorporated into products and even more time before this is reflected in prices.

The data used in this article was sourced from:  
Reuters, IEEE Spectrum, Mexico Automotive Review
Cas Biekmann Cas Biekmann Journalist and Industry Analyst