Semiconductor Shortage To Cost Global Auto Industry $210 Billion in Revenue in 2021

Kimberly Redmond  |

Video source: YouTube, Bloomberg Markets and Finance

The ongoing semiconductor shortage is now expected to cost the global automotive industry $210 billion in revenue this year, according to global consulting firm AlixPartners

The forecast released Thursday is almost double the firm's previous projection of $110 billion made in May.  

The New York-based firm issued its initial forecast of $60.6 billion in late January, just as the supply chain problem started forcing automakers to halt production at plants.

AlixPartners said it is now forecasting that 7.7 million units of production will be lost in 2021, up from 3.9 million in its May forecast.

In recent months, the shortage of chips — which go into components used to control everything from brakes to dashboard touch screens — has caused several automakers, including Honda, Ford and General Motors, to cut production while they try to replenish supplies.

After being forced to close plants last year after the onset of the pandemic, car companies are facing renewed difficulty as they compete with companies in the consumer electronics industry for chip deliveries amid a global supply chain disruption.

The latest wave of coronavirus outbreaks tied to the Delta variant has further slowed production in the auto industry, and experts have warned the chip crisis will drag on well into 2022 and possibly even into 2023

“Of course, everyone had hoped that the chip crisis would have abated more by now, but unfortunate events such as the COVID-19 lockdowns in Malaysia and continued problems elsewhere have exacerbated things,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, in a statement.

“Also, chips are just one of a multitude of extraordinary disruptions the industry is facing — including everything from resin and steel shortages to labor shortages. There’s no room for error for automakers and suppliers right now; they need to calculate every alternative and make sure they’re undertaking only the best options,” he said.

Dan Hearsch, managing director of the automotive and industrial practice at AlixPartners, added that there are no “shock absorbers” left in the industry right now when it comes to production or obtaining material.

“Virtually any shortage or production interruption in any part of the world affects companies around the globe, and the impacts are now amplified due to all the other shortages,” Hearsch said. “That’s why it’s critical that companies be armed with good information and analysis to begin with, and that they follow through with flawless, determined execution.”

Several automakers, like Ford and GM, have warned of massive earnings cuts this year due to the chip shortage, but CNBC noted that some of those losses have been offset by increased consumer demand and higher profits from record vehicle prices. 

The revised outlook from AlixPartners comes on the same day that US Commerce Secretary Gina Raimondo and White House National Economic Council director Brian Deese met with companies about the issue

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Executives from General Motors, Ford, Stellantis, Microsoft, Apple, GlobalFoundries, Taiwan Semiconductor, Intel and Daimler participated in Thursday’s virtual meetings.

“It’s time to get more aggressive. The situation is not getting better; in some ways it is getting worse,” Raimondo told Reuters in an interview. 

She said a voluntary request for information issued to companies this week “will give us more information about the supply chain, and the goal is to increase transparency so we can try to identify where the bottlenecks are and then predict challenges.” 

Raimondo added, “Realistically, there is no quick and easy fix. We are going to be dealing with this well into next year.”

In June, the Senate voted to approve $52 billion to boost U.S. semiconductor production by funding research, design and manufacturing initiatives. 

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Source: Equities News

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