The Chip Shortage May Finally be Ending
Chips shortages might be a thing of the past, but that doesn’t mean we’re out of the woods. Will the price of new cars ever be as low as the good old days?
Written by Elaine Duvet
Reviewed by Kathleen Flear
Good news, the
microchip
supply crunch appears to be coming to an end. In fact, Volkswagen, the world’s second-largest automaker is expected to ramp up EV production in the near future. And Volvo’s semiconductor inventory is back in full supply. Jerry
, the car ownership super app
, investigates the beginning of the end of our worldwide chip shortage. How the chip shortage crisis began
If you’ve tried to buy a new car in the last year and a half, you know all about insane price surges due to a global chip shortage.
So why exactly do we need microchips? Modern cars can house up to 150 tiny processors that control everything from turn-by-turn directors, to braking systems, to interactive displays. Basically, they’re essential to the function of your vehicle.
Demand for new cars reached a staggering low in early 2020 when the world shut down from Covid-19. As a result of worldwide travel restrictions, automakers reduced orders for new microchips and trimmed production plans.
However, the factories that made the chips were full speed ahead. Consumers working at home for the first time or attending classes via Zoom bought more electronics than ever.
Then, once vaccines were available and lockdown restrictions were eased, automakers tried to conduct business as usual, by ordering large quantities of chips. Unfortunately, the chip factories were too busy to meet their needs. And building new microchip factors takes a minute.
Since automakers haven’t been able to manufacture models quick enough to meet the demand, the price of cars has increased exponentially.
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Consumer spending drops, chip production ramps up
Luckily for the chip shortage, spending is slowing down across the globe. Due to China’s recent disease-related restrictions, consumer demand has been slammed and inflation has been boosted. The sales of PCs and smartphones have plummeted.
Also, since the U.S. Federal Reserve enacted two historic increases to help tame inflation rates, it increases the risk of a possible recession. It’s also forcing budgets to tighten and jobs to be cut.
While there’s still a chip shortage, chip production is expanding. Technically, automakers don’t need to use the latest and most advanced microchips on the market. In fact, chips for car design are less powerful than those found in our phones or computers.
What we really need is an improved capacity to make cost-effective light-powered chips. The microchip industry has already started building these older chips, with an increase of six percent in 2021. It’s expected to jump by 5 percent in 2022 and an additional three percent by 2023.
The chip shortage ending doesn’t exactly mean more cars
While chip production recovers, there is no guarantee that they’ll be enough cars built for dealers to mark them down again. Gone may be the days of hefty discounts from massive inventories.
Automakers are no longer interested in building a plethora of vehicles and selling them for low prices.
Some plan to keep inventories at low levels for the foreseeable future. Even Ford has tossed around the idea of a business model that requires consumers to purchase cars before they’re built.
So essentially, when the chip shortage improves, it won’t necessarily drive the prices of new vehicles down.
Across the globe, automakers continue to cut their production targets. European companies cut 25,000 cars from production targets to avoid building a stockpile, and Asian companies cut 23,000 cars from their weekly plans as well.
For now, there’s no clear timeline for when new car inventory may bounce back to normal levels. As they say, it’s still a seller's market, and what they say, goes.
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