CAR INDUSTRY HIT HARD BY GLOBAL CHIP SHORTAGE

Growing mistrust between carmakers and the semiconductor industry in the wake of the global chip shortage is causing a “mismatch” between demand and supply expectations that could prolong the crisis, automotive industry watchers have warned.

Euronews reported that the chip drought has triggered a power shift in favor of suppliers, enabling them to make stricter contractual demands on carmakers as the auto market recovers from last year’s slump, the experts told Euronews Next.

Researchers said carmakers keen to make up their chip inventory shortfalls have been inflating orders to suppliers already struggling to service multiple industries, in what they are calling the “toilet paper effect” - likening the process to the panic buying witnessed during the early stages of the COVID-19 pandemic.

Some analysts who have forecast total car production for 2021 at between 83 million to 85 million units foresee only enough capacity in the semiconductor supply chain to meet 85 to 90 percent of that demand by the end of the year.

“The problem we see though, is that the orders for chips in terms of cars are far above this level of 83, 84, 85 million cars,” said Jeremie Bouchaud, director for the Autonomy, Electronics & Semiconductor service at IHS Markit.

“What we continue to hear of are orders more in the range of 100 to 110 million units. We even heard from one tier two [supplier] telling us they saw orders amounting to the equivalent of 132 million cars.”

“There is definitely an inflation of the orders and the demand for various reasons, for the chips. Orders for refilling inventories were needed but there is still a little bit of what we call the ‘toilet paper effect’ where OEMs [carmakers] and tier-one suppliers who don’t get all of the chips they need then begin to order more - just in the hope of getting what they need.”

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