Due to a lack of microelectronics – or chips, if you like – car factories are shutting down. The pandemic exposes the vulnerability of cost reduction based on low inventories. What do you notice as a consumer?
The sleek, streamlined production machinery of the automotive industry is faltering. Conveyor lines slow down or even stop completely, the delivery of new cars is delayed. And all this not because the production personnel are still collectively in home quarantine, it is a lack of microelectronics. During the first corona wave last spring, the auto industry revised its expectations for the future downward and consequently expected to purchase significantly fewer chips. At the same time, consumers sitting at home have started buying electronics en masse. Initially laptops, tablets, PCs and other equipment for home work or education. Subsequently, the demand for game consoles increased to combat boredom. In this way, the semiconductor industry has been able to fill a declining demand from the automotive industry with the production of chips for consumer electronics.
However, global demand for new cars appears to be recovering faster than initially expected, resulting in a greater demand for chips than planned. However, the production capacity required for this has already been allocated by the chip producers and scaling up is not possible overnight, the chip factories are already running continuously. How do car manufacturers deal with this? An overview.
Diplomatic assistance
The Volkswagen Group is large in China and therefore one of the first to be hit by the chip shortage. But now the factory in Wolfsburg is also struggling with chip shortages, as is the branch in Mexico where the Audi Q5 is being built. They cannot escape it in Ingolstadt and Neckarsulm either, where a reduction of working hours would have been requested for 10,000 people in mid-January. At the Dutch importer, they say that in practice they experience little inconvenience from this and that customer demand can currently be met with a healthy stock. The situation at the factory is expected to return to normal in the second quarter.
At the Dutch Mercedes importer they inform us that production is going according to plan. What exactly that plan entails is not clear, as we learn from the German media that the factories in Bremen and Rastatt (where the A-class is being built) in particular have a reduced output due to a lack of chips.
The chip shortage at Volkswagen and Mercedes-Benz forced German Economic Affairs Minister Peter Altmaier to contact his Taiwanese counterpart Wang at the end of January with a request to put pressure on the world’s largest chip manufacturers that are based. The response from Taiwan is that the problem is the focus of attention, but that in any case there is little or no room to increase production. Wang has returned post asking Germany for help with the purchase of corona vaccines, but explicitly added that it is absolutely not a trade of chips for vaccines. Well…
Threat or opportunity
Elon Musk sees the dark cloud as an opportunity: at Tesla, they are taking advantage of the lack of chips to shut down the Fremont factory from the end of February to the beginning of March and to upgrade the production equipment. The importer cannot say what effect this will have on the delivery in the Netherlands. In that respect they are more concrete at Ford. In Europe, according to the Ford importer, the factories in Saarlouis, Cologne, Craiova and Valencia are particularly affected. The first has been closed for five weeks, which means for us that the delivery of new Focuses will be delayed by about a month.
The Honda importer does not want to respond. We do know from the financial pages that Honda had a production decline of 8.8 percent in January due to the shortage of semiconductors and that the factory in Swindon, England, was also closed in January for this reason.
On leave
Renault says to limit the impact on production as much as possible by switching flexibly and working closely with its suppliers. A crisis team monitors the supply chain on a daily basis. The peak (or should it be the bottom?) Of the deficit is expected at Renault in the second quarter. Assuming a catch-up in the second half of the year, the damage should be limited to a production loss of 100,000 cars in 2021. The impact on the Dutch market for Renault and its subsidiary brand Dacia is still being investigated. It is also a challenge for alliance partner Nissan to keep production up to standard and it is adjusted where necessary.
On behalf of the Stellantis brands Peugeot, Citroën, Opel, DS, Fiat and Jeep, we are informed that the current conditions are continuously monitored, no further comment. We know through the Italian trade unions that due to the chip shortage at the beginning of February, leave was requested for more than 7,000 employees who build the Jeeps Compass and Renegade and the Fiat 500X in the southern Italian Melfi. In addition, leave has also been requested for 1,300 employees of the Mirafiori factory in Turin, where the electric Fiat 500 is manufactured.
New models
The Mitsubishi importer tells us that the factory cannot indicate exactly how many cars it concerns and how long the delay is, but that for the Dutch market it concerns the L200 and the yet to be introduced Eclipse Cross PHEV. In any case, the importer still has enough of the L200 in stock. Because the Eclipse Cross PHEV has yet to be introduced, it is difficult for the importer to estimate whether the requested quantities will become available. The importer does not foresee any problems for the first six months, it is possible to sell from stock immediately after the launch, but how it will go afterwards is still uncertain.
The Mazda importer says that there were 6,000 less Mazdas built worldwide in February. However, it has no consequences for delivery in the Netherlands. We hear a similar story at Subaru where the ordered numbers have simply arrived and will continue to arrive in the near future. The new Outback will therefore be introduced in the Netherlands according to schedule in April.
Buying better
Hyundai and sister brand Kia, more than other manufacturers, manage the production of many of their components themselves. Another factor is that Hyundai had problems a few years ago with the supply of parts from Japan, which put the just-in-time supply system under pressure. Based on the lessons learned from this, Hyundai started purchasing additional chips in the course of 2020 against the trend. As a result, there is now not only enough in stock, but also for a lower price. The Dutch Kia importer says it will not be bothered by anything. The Hyundai importer does notice that processes are a bit more difficult here and there, but that the customer does not notice much in practice.
This is similar to Toyota’s strategy. The Reuters news agency reports that Toyota can also move forward for a while, because they have chips on the shelf there for four months (and to remember that Toyota has made the just-in-time principle great!). Only the stock is not evenly distributed around the world. In America, for example, the production of the large Tundra has been scaled back. The Dutch importer informs us that in Valenciennes, northern France, the production of the Yaris with a conventional petrol engine has been slightly downgraded. There is also a chance that production will have to be adjusted in other European factories. For the time being, the delivery of Toyotas in the Netherlands has not been delayed.
Small is beautiful
Is it all doom and gloom then? No, not (yet) everywhere. According to the Dutch BMW and Mini importer, the supply of electronic components has not yet led to interruptions in production. The same says the Suzuki importer, the delivery there is just according to schedule. At MG and Polestar, there seems to be no problem either. And also at Polestars sister brand Volvo, they report that they can still deliver cars to us. A team of experts there is in constant contact with the chip suppliers, but because they are not the largest player in the car industry, they say that they can respond to things fairly flexibly. The smaller you are, the easier it seems to go. This is confirmed to us at McLaren with the announcement that they are much too small to suffer from the chip crisis. A little further in England, at Jaguar Land Rover, they let us know that they are aware of the situation and that they are keeping a close eye on it.
Some brands are more affected than others. Perhaps small consolation is that the problem does not only affect car manufacturers. Did someone promise their children (or themselves) a PlayStation 5 before Sinterklaas?