1 Jun 21

When will microchip supply meet US automobile demand?

The corporate world is looking for microchips to put into products such as cell phones, video games, home electronics, household appliances and without a doubt, automobiles, the latter being vital to the United States as this industry injects more than a trillion dollars into its economy every year. 

For more information on the state of the fleet market in the United States and other fleet and mobility topics in North America, visit the North America regional stream of the Global Fleet Conference 2021. 

Although vehicle manufacturing and marketing usually represents some 5% or more of the country’s GDP, the industry has got its back up against the wall as demand has been outpacing supply recently. 

This is partially due to the temporary shutdown of vehicle and semiconductor manufacturing facilities, the increased cost of commodities, and other aspects related to the impacts of the worldwide Coronavirus pandemic.  

Nowadays, the time taken to produce microchips and their respective microprocessors could take two months or even more and building a new chip production factory to support growing demand could even top three years. 

Keep in mind, even after the global health pandemic subsides, the semiconductor unbalance in the market will continue due to the demands in today’s microchip hungry products. Some estimates see the market more than doubling, reaching one trillion dollars from the 450-billion-dollar market today. 

Future perspective, meeting market demands 

Chip manufacturing giant TSMC (Taiwan Semiconductor Manufacturing Company) believes that it will be able to catch up with demands in the automotive industry by the third quarter of 2021 which is just around the corner. This, however, may be a bit precipitated as some automobile industry experts really see vehicle supply starting to come to pace more toward the end of the year.  

Meanwhile, chip supply in general should take a bit longer to reach an equilibrium, according to semiconductor manufacturer Intel which sees a more drawn-out return for the overall industry. “Reaching an equilibrium may take more than a year, meaning that this shortage could even last throughout 2022,” says Intel CEO Pat Gelsinger. (pictured left)

The US-based firm is planning to spend US$20bn on two new chip factories in the state of Arizona and US$3.5bn to upgrade its Rio Rancho plant in New Mexico. Meanwhile, TSMC has earmarked US$100bn in investments, some of which will go toward a plant in Arizona which will produce chips for Apple.  

In May 2021, Intel announced a $3.5bn investment plan to upgrade its Rio Rancho plant in New Mexico (copyright: Intel)

Although these plans will certainly help support the lacks in supply, remember that building new factories will take at least two years, maybe even three.  

“Because demand will remain high and supply will remain constrained, we expect this shortage to last through 2022 and into 2023,” says Glenn O’Donnell who is research director VP for advisory firm Forrester. 

As we can see, lacks in supply could last from two months to two years, depending on the product at hand.

In preparation for the coming months, what automakers, vehicle leasing companies, and fleet managers need to do is adjust their order books accordingly and prepare for changes in production schedules as well as prices. Remember that delivery times and vehicle model selection could be different than what you are normally used to. 

Last but not least, to avoid stockpiling and to maintain an even supply throughout the industry, remember that a collective approach which involves continuous communication and overall transparency is key.  

Authored by: Daniel Bland