As the global industries battle massive chip shortages, Biden and team lay down a clear roadmap to end this challenge. What are the steps being taken to tackle the shortage of chips?
COVID-19 impacted every industry, including the global semiconductor sector. Many industries depend on semiconductors to deliver their end products to the market, right from cars to consumer electronics. The first hints of chip shortage surfaced in the spring of 2020. The world was grappling through the pandemic, leading to a considerable decline in the demand for semiconductor chips. As businesses crawled through the challenging phases, economies regained their footing. However, the foundation for potentially the most severe chip shortage in years was laid within a span of a few months.
This semiconductor shortage resulted from three major problems: a complete slump for a brief period followed by a speedy recovery in automotive sales, a substantial surge in demand for consumer electronics, and the long lead times in chip production. This primarily led to industries across the globe fighting for a limited supply of semiconductors. Automakers had to compete for these chips and fight even harder than tech giants to stand strong in the market. Earlier this month, General Motors became the latest company to join the list of automakers hit by the global shortageOpens a new window of semiconductor chips.
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CHIPS for America Act in Focus
The chip shortage has exposed the weak link in the automotive global supply chain, which focuses more on acquiring the lowest price for goods instead of resilience and flexibility.
The U.S. was once the top runner in chip production. However, many countries have attracted chipmakers to their shores by offering lucrative incentives. As a consequence, the U.S. now produces just about 12% of the global semiconductor output. Despite the reduction in chip production, these figures are good enough to make chips the country’s fifth-largest export, according to the Semiconductor Industry Association (SIA). However, this won’t ease out the current shortage.
Today, Taiwan Semiconductor Manufacturing Company (TSM) and Samsung produce some of the world’s most advanced chips, with plants in the U.S. On the other hand, Intel is one of the premiere chipmakers in the world. However, it has not been up to the mark in recent years.
A bipartisan coalition of Congressional lawmakers has taken up the issue of chip shortage seriously and are ready to pump-in billions of dollars to draw chip manufacturing back to the U.S. Besides, they are also providing funds for research and development of advanced processors through the CHIPS for America ActOpens a new window .
After the bill was introduced in the house in June 2020, Republican Sen. John Cornyn of Texas saidOpens a new window , “This legislation would help stimulate advanced semiconductor manufacturing capabilities domestically, secure the supply chain, and ensure the U.S. maintains our lead in chip design while creating jobs, lowering our reliance on other countries for advanced chip fabrication, and strengthening national security.â€
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Automakers and Consumer Tech Compete for Resources
The chip shortage came to the fore at the very beginning of the pandemic. Most automakers around the world believed that sales would collapse due to prevailing lockdown situations. This led to manufacturers slowing down the purchase of components, including chips.
However, demand for autos grew at a much faster pace than expected. According to the SIAOpens a new window , the YoY sales of automotive semiconductors fell significantly in March and April 2020, but sales bounced back quickly in Q3 and surpassed 2019 sales in Q4.
The situation demanded that vehicle manufacturers restock immediately, as they had limited chip inventory. This happened because automakers generally keep their supply chains lean with a limited number of parts in stock. That being said, automakers quickly realized that they were competing for resources with consumer tech companies, as tech companies were already witnessing a significant surge in demand.
“As the auto and industrial markets began to rebound in the second half of the year, the available foundry capacity was largely sold out,†Kurt Sievers, CEO of chipmaker NXP, said during NXP’s Q4 earnings call. “As a result, we and others are experiencing significant increases in lead times, and in certain cases, increased cost from suppliers.â€
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Biden Mandates Review of Critical U.S. Supply Chains
The Biden administration has made a bold move to handle the supply chain issues across various industries.
President Biden will sign an executive orderOpens a new window that will mandate the government to assess key industries and their supply chains, including semiconductor manufacturing, electric car batteries, medical supplies, and rare earth elements such as those found in Apple’s major products. According to the draft executive order, the Biden administration will order a 100-day review of the supply chain because of threats, like pandemics, cyberattacks, and extreme weather events, as they could pose a challenge to accessing essential goods.
Last week, Jen Psaki, the White House press secretary, announcedOpens a new window that the executive order elaborates on specific technology types important to the U.S. supply chain, individual sectors to focus on a range of threats that could affect access to vital materials.
In a nutshell, Biden is guiding executive authorities to take a closer look at the status of the semiconductor manufacturing industry, high-capacity batteries — including ones used in electric cars, rare earth materials, and medical supplies.
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In conclusion
Looking at the current trend, automakers will have to settle with idle plants until they can access more chips. To avoid being in a similar situation in the future, automakers need to restructure their lean inventories by building up a substantial stock of chips for their vehicles.
That being said, with the executive order in the spotlight, it will be interesting to see how the Biden administration revives the auto supply chain as it faces the uphill task of managing massive chip shortages.
Do you think the Biden administration will be successful in addressing the chip shortage anytime soon? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!