- Photo Credit: CNBC

The Semiconductor Chip Shortage Projected To End By 2025.

2025 is likely to be seen as the end of the shortage as new investments are put in place to boost chip production.

3w ago

It finally comes as a startling surprise to many in the automotive industry as speculation suggests that the semiconductor chip shortage is not expected to end until 2025. As many countries begin to resume normal function, the demand for automobiles has increased incrementally. The result has led to the rapid production of semiconductor chips for automobiles. And, based on current projections, it is likely that tech companies will not be able to match the demand for a few more years.

What caused the chip shortage?

The reason behind the chip shortage is attributed to the global pandemic. While many are reluctant to blame the pandemic for all of their problems, this issue is the result of government action to slow the spread of the virus.

In March 2020, numerous countries began enforcing stay-at-home orders and imposing lockdowns. Due to this, consumers did not need automobiles or any form of transportation for that matter. The low demand for vehicles caused car manufacturers to limit their assembly plant production, with some closing indefinitely.

As a result, tech companies shifted their attention from cars to electronic devices. TVs, video-game consoles, cell phones, and just about any other electronic device became the dominating commodity requiring semiconductor chips. However, as automakers began to open sooner than anticipated, production started again with limited chip production.

Due to the demand for electronics being higher than cars, even after things began opening, the production of semiconductor chips for automobiles never went into complete production. The result caused large corporations like GM to scavenge for the chips to be put into new vehicles. The issue inevitably grew into a global shortage.

The outcome of the shortage.

The outcome, in short, resulted in the reveal of underlying supply chain issues that ultimately required intervention from the government and companies afflicted by the shortages. A costly mistake that can not happen again. The global auto industry saw approximately $210 billion in lost revenue in 2021, according to AlixPartners.

The units produced are expected to take a sizeable loss of being down 11.3 million units in 2021. This loss will drop to 7 million units in 2022 and fall to 1.6 million units in 2023.

The impact on consumers.

The shortage caused substantial strain on consumers searching for a new or used vehicle. Automakers were purchasing used cars for their semiconductor chips. Due to this, the market saw higher prices and limited supply. Dealerships also became unequipped to supply consumers with a new vehicle right off the lot. Most dealerships that used to carry 70 to 80 days' worth of units to sell but were now limited to roughly 10.

Then there is the average transaction price for a vehicle. It now exceeds $45,000, according to J.D. Power, and the average incentive is down to about $1,600. Consumers should expect to pay 12% more for a new vehicle. The good news is that as vehicle supplies increase, the price is projected to return to pre-shortage prices.

More chips are on the way, but it will take time.

As more of the world resumes normal function, we can anticipate that more chips are on the way. Various investments are already underway to ensure that the demand for semiconductor chips is met. Taiwan Semiconductor Manufacturing Co. plans to spend $100 billion to build new chip plants over the next three years.

However, KPMG suggests that it could take up to October 2023 to reach the projected demand. Although, shortages are likely to be present for a couple more years to follow. According to MotorTrend, Stellantis has a deal with Foxconn owner Hon Hai Technology Group to design four new families of chips that will meet 80 percent of the automaker's chip needs, starting in 2024.

In the end, the situation is improving. It is not the outcome many would desire, but it is better than having no production at all. These investments will ensure that future shortages like this won't be possible.

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Comments (8)

  • It’s a vicious cycle. Between electrification/hybridization of powetrains, safety/driving aids and consumers demanding slick infotainment systems - each unit in turn needs more electronics and sensors. And the reliability requirements for automotive are a step above consumer/industrial semiconductors.

      20 days ago
  • Wow

      21 days ago
  • oh crap thats longer than I thought

      21 days ago
  • yay?

      21 days ago
    • It's actually quite a sad reality that it's going to take a lot longer to fix the shortage issue.

        21 days ago
  • Doubtful. It'll be back to normal in less than a year.

      21 days ago