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Here’s Why The Chip Shortage Is Proving Difficult To Overcome

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The semiconductor chip shortage has crippled global automotive production throughout 2021, costing automakers hundreds of billions in lost revenue and sending new and used vehicle prices soaring to new record highs with each passing month. Ford has been impacted tremendously by this supply chain crisis as well and is projected to lose roughly 700,000 units of production this year alone. Opinions on when the chip shortage might end vary greatly, and Ford CEO Jim Farley recently stated that he believes that the crisis will endure through 2023. With companies including Ford doing everything possible to circumvent this issue, the question remains – why has it proven so difficult to overcome?

According to Automotive News, this crisis is particularly complicated, with many moving parts. Building new semiconductor plants takes years, and chip production is far more complex a task than automotive production. Chip plants operate 24 hours a day, 365 days a year, far more than the average auto plant. Similarly, chip plants take as much as five years to build and ramp-up to full capacity, compared to just two and a half years for an auto plant. And while vehicles take around 15-30 hours to build, chips can take up to five months to produce, package, and ship.

Regardless, the good news is, a number of automakers and chipmakers are investing billions in domestic chip production. That includes Taiwan Semiconductor Manufacturing Co. (TSMC), one of the world’s largest chipmakers, which has invested $12 billion in an Arizona-based plant that will begin production in 2024. Intel has already broken ground on a $20 billion chip capacity expansion in Arizona, while Samsung is spending $17 billion on a new plant in Texas. Multiple companies are working on making the chip production process more efficient as well.

These changes will take years to have any sort of impact on the market and automotive production in general, but it’s clear that once these new plants are online, chip supply should no longer be a concern for automakers. In the meantime, strong demand for new vehicles, coupled with limited supply, figures to keep prices afloat for the foreseeable future.

We’ll have more on the chip shortage soon, so be sure and subscribe to Ford Authority for around-the-clock Ford news coverage.

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Brett's lost track of all the Fords he's owned over the years and how much he's spent modifying them, but his current money pits include an S550 Mustang and 13th gen F-150.

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Comments

  1. Don Wood

    This is what we get for outsourcing our chipmaking to foreign countries. It’s long past time for “made in the USA to mean something again. Now if Ford would start making all the parts for its own cars in its own factories.

    Reply
    1. Roy Chile’s

      The cost would be high as hell to build all the parts in its on factories, it would cost less to convert a existing unused factory to build semi conductor chip

      Reply
    2. Brad Barefoot

      The story broke about three weeks ago that it’s not so much a chip shortage, as much as it is the wiring harness (for the sake of a better word) can’t accommodate the chips currently being produced … so, the chip makers have to build the older style computer chips, and the 700,000 number wasn’t big enough a production run for them (chip makers) to be profitable.

      Reply
  2. Greggt

    Looks like chip making is expanding in the US but sadly not solving our domestic issue. Samsung and TSMC (the worst situation given the present China issue) are foreign owned companies. With TSMC we could be in the same situation with chips as we are with pork with China controlling the US market!

    Reply
  3. Bob

    Don has good points. Downside is that the vehicles cost would increase quite a bit because of the cost to manufacture in USA versus Asia & 3rd world countries.
    High minimum wage/union wage versus a few dollars a day for labor makes a BIG difference in pricing to automakers.

    Reply
  4. Montana Man

    I’ll pay the extra price if, as an example, the truck’s price increases by $100.00 (that’s what economists believe the increased cost would be). With every generation of chips, the capacity for calculations and functions increase while the price remains static, or reduces.
    Buying American is everyday patriotism.
    We need to re-grow our middle class.

    Reply
    1. vinny trotta

      Montana Man, you are correct !!!! Make the damn chips here. we’ll pay the extra 100.00 ….even if it was 300.00 !!!! What’s 300 more dollars on a mustang that costs 60 grand ??!!

      Reply
  5. NCEcoBoost

    This article overlooks two important points. First, chips in vehicles are relatively low-tech compared to other chips and chip producers make less money on vehicle chips, encouraging them to make vehicle chips a low priority. Second, manufacturers have no incentive to increase vehicle production since they’re making TONS of money on these ridiculous prices (that the brain-dead gladly pay).

    Reply
  6. Joe Figg

    From a common know nothing about real reasons behind the chip problem customer, I don’t think there is a hurry ASAP rush to make chips. Dealers make more profit on used vehicles than new. By production of chips HERE with American manufacturing and union labor of course the cost is more. There can’t be hardly any impatient customers not willing to pay the cost increase. Trust in big business is not based on honesty it’s based on economics, profit.

    Reply
  7. Jack Jacobs

    We all know about the ongoing chip problem. My question is why Ford will not give customers any information about their new truck back orders for the last 6 months. All Ford will say is there is a parts problem and your order may be 1 of the next 500. If that is the best news they can give the dealers or customers then maybe we should just buy a Dodge or Toyota.

    Reply
  8. Dr. Robert Castellano

    In six articles I’ve written on the financial blog Seeking Alpha, I could only find a fire and earthquake at Renesas impacting microcontroller chips, and with hoarding as the problem. Elon Musk agrees with me on the microcontrollers, and the CEO of TSMC agrees with me on the hoarding. Conversely, NO auto company has come out and said what chips are shorted. China gets chips from manufacturers around the world and makes them into modules that are placed in cars primarily in Asia and the US. Ford engineers don’t walk around the plant with a soldering iron and a basket of chips. These modules, like navigation, radio, lights, come assembled.
    As a result, semis are building more fabs to make more chips and buying more equipment. A $3 microcontroller chip used in nearly all electronic gadgets, is selling for $93 because of shortages and hoarding.
    The US embargo to China means China is building more fabs and hoarding chip equipment before more sanctions kick in. I also are seeing hoarding as the Chinese, sticking their middle finger at the US, are prioritizing chip shipments to Chinese auto companies. At the same time, global auto companies outside China, which are predominantly ICE makers and a ~10% business in EVs, are prioritizing orders of components first to EVs, then to ICE.
    Finally, because of all this mess and worries about supply chains, many countries, lead by the U.S., are giving free money to chip companies to build plants in their own country.

    Reply

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