A semiconductor shortage is battering the global auto industry at a crucial moment, and the pressure shows no sign of easing soon.
What’s happening: Ford told investors Thursday that the chip crunch could shave up to 20% off first-quarter production.
Chief Financial Officer John Lawler said that if the problem drags on through the spring, the company’s earnings could take a $1 billion to $2.5 billion hit.
It’s not just an issue for Ford. GM is shutting some plants in the United States, Canada and Mexico next week due to insufficient supplies, while Volkswagen, Fiat Chrysler, Toyota, Nissan and Honda have also been affected.
“Despite our mitigation efforts, the semiconductor shortage will impact GM production in 2021,” GM said in a statement this week. “We are currently assessing the overall impact, but our focus is to keep producing our most in-demand products — including full-size trucks and SUVs and Corvettes — for our customers.”
Average car has 50-150 chips
The backstory: Leading semiconductor manufacturers reassigned capacity from automakers last year after the pandemic hurt car sales, instead shipping chips to companies that produce smartphones, gaming systems and other tech gadgets that were in high demand. Now, supplies remain tight, and carmakers are struggling to secure the chips they need.
The tiny parts are essential to production. The average car has between 50 to 150 chips, which are used in a growing number of applications, including driver assistance systems and navigation control.
Bottlenecks may persist for months, weighing on the auto sector as it tries to recover from the pandemic. It could even force some companies to raise prices.
“The current chip shortage poses a big threat of further slowdowns in production for the entire industry,” Jessica Caldwell, executive director of insights at Edmunds, told clients this week.
Investor insight: Wall Street is mostly looking past the turmoil, sending auto stocks higher as companies make increasingly bold commitments about future production of electric and autonomous vehicles.
Ford said Thursday it will invest $29 billion in electric and self-driving cars, though it needs to play a bit of catch-up, my CNN Business colleague Chris Isidore reports. EVs already make up nearly 3% of Volkswagen’s global sales, while GM announced last week that is expects to exclusively sell emission-free vehicles by 2035.
But the longer the chip shortage drags on, the more it could hurt the industry — even as lockdowns end and demand for cars starts to pick back up.