Car factories cutting back production as semiconductor chip shortages bite worldwide



Covid-19 enforced shutdowns throughout 2020 are resulting in component shortages for many industries including carmakers 


SINGAPORE

In case you haven’t heard, all is not well in the automotive factories around the world. There were murmurs of Covid-19 related production delays in 2020, but now more than halfway through 2021 the full impact of component shortages is being felt in the major car factories.

Should this period of shortage run on for long enough, the stock availability of new cars in Singapore could be affected, which means that getting you hands on a new car might get a little harder.

The PSA factory in Rennes, France, which builds Peugeot and Citroen cars, has been on standby for most of August, and it has now been officially reported that production has been halted for another week. This stoppage also extends to the Peugeot S.A. factories in Sochaux, France, and Opel’s Eisenach plant in Germany, the other brands under the Stellantis group.

Daimler has also reduced the working schedules and outputs of the Mercedes-Benz factory in Hungary and Germany.It’s been reported in the German News Agency (dpa) that the reduction will include a one-week halt in production, until at least 5th September, at the brand’s German factories in Bremen and Rastatt and in Kecskemet, Hungary.

The Mercedes-Benz C-Class and the GLC SUV are built in Bremen, the B-Class in Kecskemet and the A-Class in Rastatt.

Volkswagen has reported that it is extending production cutbacks in its home factory in Wolfsburg, Germany, along with plants in Zwickau and Dresden as well for at least a week.

The VW Group’s Seat factory in Barcelona, Spain, is also enduring a partial stop at some of its production lines to throttle back its output. 

In Sweden, the chip shortage has forced Volvo to idle its Gothenburg plant more than once, with the latest being for the week from 30th Aug 30 to 3rd September 2021. 

All these stoppages and reductions are due to a worldwide shortage of semiconductor components. 

With new cars housing more electronic components than ever, automakers are facing stiff competition from the consumer electronics industry for chip deliveries. Due to the Covid-19 pandemic, the supply chains from the factories that produce semiconductor chips for various industries have been disrupted enough to affect many manufacturing operations worldwide.



Why is this happening now though, and not in 2020?

The forward-planning production system is to blame, or in this case, may even have been of benefit throughout 2020. Components used in car manufacturing are ordered from third-party suppliers many months in advance. In almost all cases, this allows the supply chain to manufacture and fulfil the orders early. 

The worldwide temporary factory shutdowns due to multiple Covid-19 lockdowns in 2020 would not have greatly affected component orders in that same year. Factory production runs would have already been set in place, and like automotive factories, the semiconductor manufacturing industry builds ahead with a ready stock for shipping in the warehouse.

The real effects of component factory shutdowns are really felt from around six months after, when the warehouses are depleted of stock and new ones are not being made fast enough to fulfil outstanding orders. 

As it stands, just before the full effects of the Covid-19 pandemic hit in 2020, Taiwanese enterprises accounted for 66% of the world’s semiconductor manufacturing market, while South Korea’s two biggest wafer makers took 19%. Interestingly, China accounts for just 6% of the world’s total semiconductor manufacturing capacity.

There were efforts by car manufacturers to keep up with the processes throughout 2020 going into 2021, but as it stands in September 2021, the global chip shortage is causing more serious delays. 

Will all this have any effect on car sales and deliveries in Singapore? We are a very small market segment compared to the other major players in the world, and at the moment there seems to be minimal disruption.

Audi Singapore has noted that there are no delivery delays and stock shortages for now, though the sales team is constantly checking with the factories in Germany for any potential delays for the months ahead.

“The global shortage of semiconductors shows no sign of abating because of persistent Covid-related issues. Thankfully, we are a small market where the volume of production is still manageable. We are working closely with our head offices to fulfil all new car deliveries for 2021,” noted Ricky Tay, group managing director of Volkswagen Group Singapore.



A BMW spokesperson that we queried noted that, “The BMW Group has made individual adjustments to its production programme to take into account the limited availability of semiconductor components. Thanks to its highly flexible production system and flexible work-time models, the BMW Group is able to make adjustments on relatively short notice.

We were largely able to compensate for the challenging semiconductor supply problems arising in the first six months. Nevertheless, the BMW Group expects the supply situation for semiconductor components to remain difficult. We expect production restrictions to continue in the second half of the year and hence a corresponding impact on sales volumes.”

BMW’s aim is to ensure supplies continue to reach its manufacturing plants, and the brand spokesperson further explained, “We ordered the required volumes for 2021 at the appropriate time and expect our suppliers to fulfil these orders as stipulated by the contract. We are monitoring the situation very closely and are in constant communication with our suppliers in relation to this.”

Nissan in Japan has officially announced that there are production line reductions, and Toyota officially confirmed that it slashed production outputs by 40 percent for the month of September. A source from a major Japanese distributor in Singapore revealed to us that it has had to wind back its sales targets for 2021 as the allocation of new cars for Singapore has been reduced, going forwards.

Current orders and deliveries in Singapore are likely to stay on track as we do not move as many new cars as the larger countries. Yet this can change if the semiconductor chip shortage is not addressed quickly enough and the production delays trickle down to stock destined for small countries like Singapore. 

It’s not just cars though, as mobile phone and computer makers are also stuck with backorders. Analysts expect the shortage to last well into 2022. The issue already has US President Joe Biden and European commissioner Margrethe Vestager unveiling plans to manufacture more computer chips in Europe and the US as part of a new trans-Atlantic technology alliance known as The Trade and Technology Council.

A statement from the two leaders in May 2021 included a pledge to build “an EU-US partnership on the rebalancing of global supply chains in semiconductors”.

For now, despite car factories running on and off worldwide, it’s still business as usual for car dealerships in Singapore.

about the author

Lionel Kong
An old hand from the bad old days of crazy COEs, the straight-shooting, ex-CarBuyer editor is back in the four-wheeled world. Rumours that he went to another country to start a Judas Priest tribute band are unfounded.