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Major automotive companies have been cutting down their production quite rapidly over the past few months, and the reason for this is not the economy or change in trends but due to a global shortage in semiconductor chips.
As we know, modern cars carry a very complex array of electronics underneath. These electronics that are laid in the cars are made of complex chips and various other circuitry, which in turn require semiconductors in their production.
Even though the semiconductor manufacturing industries around the globe have been able to keep up with the global demand from the automotive industry, almost all of the production of these semiconductors have been made by a handful of eastern countries.
One of the reasons for major corporates to take the semiconductor manufacturing industry to eastern countries is due to cheaper labour and lesser restrictions resulting in lower production cost and higher profit. But that's a story for another day.
Let us focus on the present ‘chip crunch' that is plaguing automotive production. Major automotive groups like Volkswagen, Toyota, Geely have already announced rigorous plans to cut down the production due to the semiconductor supply shortage.
European automotive giant, Volkswagen has already announced its second production cut to compensate for the shortage in semiconductor supply. However, Toyota has been somewhat able to manage this semiconductor shortage better than almost all manufacturers. This is because of Toyota's experience from handling the supply shortage crisis during the 2011 earthquake and the Fukushima nuclear disaster.
Since then the Japanese automaker has kept a large enough stock to manage and overcome supply shortages during times of crisis. Yet, Toyota had thrown in the towel by chopping its production by 40 per cent from its previous plan on managing the current crisis.
Toyota even had to cut production in 14 factories in Japan and overseas, and the company's global production will be limited to 3.6 lakh units. This cut down in production resulted in a 4.4% dip in share value for Toyota. Despite all this, Toyota has stuck to its production target of 9.3 million vehicles and retail target of 8.7 million vehicles by the end of this financial year.
Automotive experts are worried that the production may take a further hit as one of the top chipmakers Infineon had shut down its plant in Malaysia due to the outbreak of COVID-19.
At present, the share values of European automotive giants like Volkswagen, BMW, Renault, Daimler and Stellantis are already down by more than 2 per cent due to the ongoing chip shortage.
On the other side of the pond, things have been extremely difficult with Ford temporarily shutting down its Kansas City plant due to a semiconductor-related part shortage for its latest F-150 pick-up truck.
Despite being a Chinese company, even Geely is worried about the chip shortage. However, the company is trying to manage its full-year sales target of 1.53 million vehicles. The Chinese company even posted a 22 percent rise in six-month revenue reaching USD 6.94 billion in revenue, while its total vehicle sales rose to 6,30,237 cars for an increase of 19%.
Thoughts On Semiconductor Shortage Affecting Major Automotive Companies
The global chip shortage has taken a toll on global automotive production. However, the Tata Group has recently forayed into electronics to tackle this dependency on eastern countries. This will not only help in reducing the dependency on foreign countries but it will also vastly improve the GDP of our country.