Chip supply constraints will likely persist until third quarter 2021

Insights
Circular Economy & Remanufacturing

The crisis has highlighted the need for adjustments in capacity and sourcing patterns between automakers, tier-1 suppliers, semiconductor suppliers and their foundries. In the short term, only industry-wide collaboration can help reduce the effect.

The semiconductor shortage crisis has hit the automotive industry at a time when the sector started to experience a moderate recovery in production levels following a pandemic-inflicted slowdown. The ramp up in demand of chips from the automotive industry started when the supply lines were already stretched by significant demand for chips from the consumer electronics sector, for 5G phones and infrastructure, new gaming platforms, and IT equipment. There are no easy fixes to the capacity constraints owing to the long and complex manufacturing processes of semiconductors, which make new capacity building a capital intensive and time-consuming affair. The shortage is expected to last until the third quarter of 2021, when re-allocation of capacity from semiconductor foundries and possibly some cooling off of consumer electronics demand should provide greater supply security.

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