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The Global Chip Shortage Creates Trouble

Written by Monica Savaglia
Posted September 7, 2021

There’s a semiconductor chip shortage happening and it’s causing some major waves in major industries.

One of those is the automotive industry. Last week, General Motors announced that its four plants in the U.S., three in Mexico, and one in Canada will shut for to up to two weeks because of the semiconductor chip shortage. 

General Motors isn’t the only company making adjustments to its business. Ford and Toyota have cut their output in August. The chip shortage has been increasing car prices so significantly that it has people considering buying cars secondhand instead of new. 

Nowadays, new cars have dozens of microchips throughout the vehicles, so you can see why a chip shortage could significantly affect the production of new vehicles and have a detrimental effect on a company’s financials if this shortage continues. 

As the pandemic was kicking into high gear last year and most of the world was disrupted, most automakers canceled orders with chipmakers because it was uncertain when supply and the world would get back to normal again, along with fears that there could be a massive decrease in sales. 

Now that the world has opened back up and demand is steadily increasing, automakers are having trouble meeting those demands on top of having to compete with technology companies for the supply, as they need to meet consumer demands so they don’t miss out on sales. 

Automotive Industry Is Struggling

U.S. sales of Ford Motor’s new vehicles last month experienced a decline by about 33% from the previous year, and the global shortage of semiconductor chips could be the culprit of this decline for not only Ford but for the entire automotive industry. According to auto data from Motor Intelligence, for August auto sales, Ford had an adjusted selling rate of 13.09 million vehicles — that’s down from this year’s peak of 18.5 million in April and has been the worst pace since June 2020. 

Historically, August tends to be a higher auto sales month of the year for automakers, especially with the Labor Day holiday weekend and sales incentives to bring customers into dealerships. However, this year that was not the case, especially with vehicle inventory levels at record lows and the skyrocketing pricing for new cars and trucks.

It’s been a tough year for the automotive industry. Some automakers were hoping that the worst was behind them, but it appears this might be the new normal for some time. Volkswagen’s CEO, Herbert Diess, had this to say when talking about the shortage and future business in a recent interview on Labor Day:

Probably we will remain in shortages for the next months or even years because semiconductors are in high demand. The internet of things is growing and the capacity ramp-up will take time. It will be probably a bottleneck for the next months and years to come.

Adding Fuel to the Fire

As I was saying earlier, this global chip shortage might not be over anytime soon. Especially when there is a COVID-19 outbreak in Malaysia that’s creating more issues with the shortages of semiconductors and other components needed by automakers. Over the years, Malaysia has emerged as one of the major centers for chip testing and packaging — Infineon Technologies AG, NXP Semiconductors NV, and STMicroelectronics NV are some of the suppliers that have operating plants in Malaysia.

Since COVID-19 infections continue to soar in the Malaysia, it’s hard to keep a positive outlook when it comes to getting production back on track. Rising infection numbers mean that any plans of lifting lockdowns and being able to restore full production capacity could go out the window. The country is reporting a seven-day average of over 20,000 daily infections, a big increase from late June’s 5,000 daily infections.

It’s hard to see the light at the end of the tunnel when it comes to this shortage, as COVID-19 infections have increased in Malaysia and manufacturers won’t be able to operate at 100% until more than 80% of their workers are fully vaccinated. Until then, these factories will be struggling. If more than three workers are infected with COVID-19, that means the factories have to shut down completely for as long as two weeks for sanitation, which means more time lost and fewer semiconductors produced.

Here’s Another Perspective…

The global semiconductor chip shortage is having a massive impact on the automotive industry and the technology industry, and as long as we have these issues throughout the supply chain this shortage will likely continue into 2022 and maybe even 2023. 

While the chip shortage is an important issue to keep an eye on, it’s important to get another perspective on the situation, especially when it comes to how you might consider benefiting from it. 

Most often, there’s always an opportunity to turn a negative into a positive — it’s just a matter of how and when. And that’s why I think you might want to take a look at a report that could show you a new angle of this current chip shortage and give you a chance to make impressive gains in the years to come.

This report reveals a new technology that’s set to pave the way for the next generation of technological achievements so that the economy doesn’t experience a slowdown that everyone is expecting and can continue advancing in technology. Check out the report here to learn more about the technology and a company that’s involved.

Like I said earlier, there’s always an opportunity to turn a negative into a positive. You don’t want to miss out on this one.

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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