Auto makers globally have been grappling with a shortage of semiconductors since late 2020, when a rebound in auto sales took companies by surprise after they had previously moved to reduce chip orders. Auto makers competed for limited supply against electronics companies like Apple and Dell that saw demand bolstered by stay-at-home consumers.
That demand has now eased, and smartphone sales are falling. The car market, meanwhile, has remained relatively strong and Toyota, the world’s biggest auto maker, says it still can’t get its hands on enough chips. Toyota is trimming this year’s production by 500,000 vehicles because of the shortage.
The situation reflects prolonged underinvestment in certain older types of chips that are particularly needed by car makers, writes The Wall Street Journal (Nov. 2, 2022). While slowing demand for smartphones and personal computers has eased shortages of memory and other chips and sparked fears of a glut, pockets of constrained supply remain. Analysts and chip executives say the supply-demand mismatch could drag on for years, that the auto industry isn’t yet near the end of its problems, and some might even worsen.
The problems particularly involve analog chips, which use older technology processing information with gradations, unlike digital chips that differentiate only between on and off signals. Other auto makers beside Toyota have also said they are grappling with a tight supply of legacy chips. Cars use hundreds of analog semiconductors for purposes such as moderating how much power is drawn from a battery, yet new investment has largely been funneled into developing more advanced chips.
Due to the nature of vehicles today, even if it’s just one type of semiconductor that’s in short supply, a car can’t be built. Toyota said it would temporarily give buyers of some models in Japan one smart key instead of two to help ration supplies.
Classroom discussion questions:
- What options do auto industry operations managers have when faced with a chip shortage?
- Why is there still a semiconductor shortage?