The Long-Term Effects of the Chip Shortage

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Serena Aburahma
Updated on Jun 27, 2022 · 3 min read
Car technology
is evolving with each passing day as manufacturers look to differentiate themselves from rivals by giving consumers more features. The manufacturing process has slowed down over the last year due to the chip shortage caused by the Covid-19 pandemic.
In the short term, the chip shortage is causing decreased availability of new vehicles and lower sales numbers for manufacturers and dealerships.
In the long term, though, the effects of the shortage could lead to car companies reducing their reliance on international markets. It could also impact President Joe Biden's
plans for widespread EV adoption
While the effects of the Covid-19 pandemic have been difficult on the auto industry, looking ahead it seems that the industry could be changing for the better.

Pandemic-induced chip shortage

With carmakers adding new technology to their vehicles all the time, semiconductors have become a crucial component in the manufacturing of automobiles. The shortage in chip availability car companies have curtailed production on vehicles, resulting in less inventory.
Toyota and General Motors have announced significant reductions in their fall production schedules due to the lack of available parts.
The chip shortage is going to cost the auto industry in the short term.
The Wall Street Journal
reports that consulting firm AlixPartners estimates the shortage will cost the industry approximately $210 billion in revenues this year.
That’s almost double the $110 billion estimate that the firm issued in May, showing that the situation is getting worse with time instead of better, and it may continue into at least the second quarter of 2022.

What are the long-term effects of the chip shortage?

In the short term, companies like GM are
cutting features
and losing a lot of potential revenue.
Looking into the future, the current chip shortage may end up changing the auto industry and how it makes cars in the future. Right now, carmakers rely on third-party companies to make and distribute semiconductors; in the future, car companies may take on the task themselves.
quotes University of Michigan professor Erik Gordon with bringing up that possibility. He predicts that over the long run, "We're going to see car manufacturers designing their own specialized chips and either manufacturing them themselves or arranging to have them manufactured."
Getting more involved in the chipmaking process will give companies like Toyota more control of the availability of the chips that are becoming more critical to car technology.

The effect on President Biden's EV plans

President Biden has long been an advocate of the U.S. encouraging its citizens to
adopt electric vehicles
to cut down reliance on fossil fuels. The chip shortage may actually help his plans come to fruition, while also bringing more manufacturing jobs to the States.
reports the president has been calling for companies to onshore supply chains in the wake of the widespread shortage.
Ford has announced a joint venture with South Korea's SK Innovation to invest more than $11.4 billion in new facilities in the U.S. to produce EVs. Moving more manufacturing domestically will cut out time-consuming parts of the supply chain, including getting the parts shipped from overseas.
With manufacturing shortages, the automobile supply isn't able to meet the demand, which is leading to higher prices. No one likes higher prices, and thankfully when it comes to auto insurance you can know for sure if you’re paying too much for your coverage.
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