EconomyFinancialChip shortage gives automakers a reality check

Chip shortage gives automakers a reality check

The chip shortage has been a reality check for automakers. For years, the automakers, so fond of power and speed, had not wanted to accept that their cars were increasingly similar to a ‘computer on wheels’.

Although the first electronic control units appeared in General Motors and Ford vehicles in the 1970s, to control some specific functions of the engines, -and since then the manufacturers have not stopped incorporating new ones-, the assemblers have been more focused in the mechanics of the cars and not so much in the software.

A different vision than the one that new players like Tesla have had, which basically conceived of their cars as an electronic device that also served to move from point A to point B. “We really designed the Model S to be a very sophisticated computer on wheels Musk said in 2015, announcing that the Model S would be capable of remote software updates.

In the last decade, chips have become vital to the operation of even the most austere vehicles. The average car today may have between 25 and 50 central processing units (CPUs), according to the study Computer on Wheels: Disrupting Automotive Electronics and Semiconductors , which control basic functions inside the vehicle. And the level of sophistication will increase as electric and autonomous vehicles move closer to mass production.

Although it has been clear for a few years now that we are heading towards a future in which cars will be less ‘mechanical devices’ and more ‘electronic devices’, no automaker realized how critical it would be if one day chips were in short supply. Especially considering that 80% of the global supply of these tiny components depended on a single supplier in Taiwan.

“2021 was supposed to be the year of recovery, after the fall of 2020. No one expected a global semiconductor crisis. We estimate that around 585,000 units were stopped being produced in Mexico due to this. In the world there are 8 million units “said Gerardo Gómez, director of JD Power Mexico.

The shortage of chips, which forced assemblers to stop production lines around the world, has shown how highly dependent the industry is on silicon. This will inevitably cause traditional manufacturers to rethink their priorities.

Just as the price of oil had a great influence on the decisions made by top executives in the sector in the last 50 years – in the 1970s, automakers had to change their large cars with powerful engines for smaller, more economical models in the middle of the market. of the oil crisis – now silicon and lithium will dictate the pace that the industry will follow.

“What is really determining the sales volume now is the availability of units on the sales floor. And this depends on the availability of chips that each manufacturer has,” says Gómez, from JD Power Mexico.

The ability of assemblers to adapt their chains to this new reality will be key to maintaining a stable inventory on their sales floors. General Motors CEO Mary Barra said earlier this year that a global shortage of chips has forced the company to take a closer look at its supply chain.

“We’re re-evaluating and having direct relationships with tier two, three and four suppliers to make sure we’re going to have a secure supply,” Barra said.

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