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HOW SHORTAGE OF SEMI-CONDUCTOR CHIPS ARE AFFECTING AUTOMOMOBILE COMPANIES

By: Adnan Hussain Solangi

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From the beginning of human life, humans have had some basic needs. And to fulfil their needs humans develop methods which not only satisfied their basic needs but increased efficiency as well and to get more productive humans to upgrade those methods with time and suddenly it gave birth to the biggest revolution of the world which we call the industrial revolution and that industrial revolution passed through 4th generation to satisfy the human needs and it slowly became a part of human life.

Humans invented the machines to obtain more productivity and following that lust of humans towards modernization we are currently in an era of digitalization where we are incarcerated with machines.

Humans introduce numerous ways to satisfy their different necessities. Like as, they invented
cars, trains & planes to travel faster they invented mobile phones to communicate faster they
invented computers to reap information easily they introduce televisions to familiar with the
world and to get entertained, there are much more things like these which humans introduce
to satisfy their needs with time.

As the era of digitalization start boosting those things become part of our daily life and for
now, our life is unimaginable without these machines. So concerned here is if all those
machines went out of work what would be the human life?

Modern machines work on the principles of electronic systems and the electronic system has
a base element which we called semiconductor chips. A semiconductor chip is present in
every electronic device it is basically root of electronic devices our phones, computers, smart
gadgets and even our cars and smart homes are consists of those electronic chips so what if
those chips went disappear or in case what if we went lack of the chips so what will be the
scenario?

Currently, a situation is developing where we are hearing same scenario of same case that
many of automobiles companies reported that they are running with shortage of chips not
only car companies but cell phone and smart appliances companies are also dealing with
same crisis.

But automobile is one major sector which is affecting most due to lack of chips, cars now a
days are becoming smart take example of Tesla motors. Tesla motors is one of biggest
company whose aim is to change cars from human driven to to driverless cars and to make it
possible tesla surely needs new technology along with a hardware system consists of smart
cameras and hundred of sensors. And to follow the competition other car companies like
Audi, Mercedes, Hyundai and several other companies are started making their cars smart
and that creates more demands for semiconductor chips.

Cars today are far more complex than ever before, they need any where from several hunderd
semi-conductor to a thousand, and these chips control every thing from the ignition to
braking system. Individual chips packaged in ECU system of cars they sort of act as almost
separate organs that have different functions in human body, they tell the hardware what to
do electronically.

But now auto makers can’t source the semi conductors fast enough and many cars are sitting
at parking lots to waiting for chips because during the pandemics ships for vehicles diverted
to meet a surge in demand for electronics as people were stuck at home and their availability
has become tighter also because of natural disasters that disrupted the supply chain and the
resurgence of convert cases in important chips making regions this crunch could cost global
automakers around a 110 billion dollars in revenue this year, this crisis has really forced
automakers kind of rethink both in short term and the long term, how they manage their chips
and their supply chains. So here is how companies are adjusting their production plan..

One of the solution is when you don’t have enough of any thing try to use it less so some
automakers are dropping features that requires chips, there are some of small addon features
people have been willing to over look them, some car companies in the U.S said the global
automobile company Stelantis which owns jeep rams and other several brands ships and
pickup trucks without an electronic system which looks out for blind spots, in another
example General Motors said it was building some full size pick up trucks without software
that helps manage fuel consumption. Elon musk as well said the tesla is removing the
adjustable lumbar support from the front passenger seat of some vehicles because due to
major industry-wide supply chain pressure.

It hasn’t been a big hit sort of reputational or from a market share stand point that they have
been kind of forced to take that step. For instance Delantis more than 89 billions in the net
revenue in the first half of this year (2021), while general motor had a strong second quarter
with 2.8 billion dollars in net profit. But automakers have had to make some tough choices
like choosing between vehicle , car companies are all trying to figure out what prioritize what
they want to make and what can be sacrificed.

For instance general motors said it’s been shifting computers chips away from its less profitable vehicles and using them in their more popular cars, but even with diverting inventory there is no guarantee that there is enough for the vehicles that have been prioritized.

When they may not have one of the chips that they need they will continue to build those vehicles and then they are setting them aside in parking lots around the factory and waiting for chips to arrive, this is what in the industry called the “build shy strategy”. The good part about that is it allows to them keep the factory running because it is costly to keep turning off and turning back on your factory, but this can mean
shipless cars end up sitting in lot for an indefinite amount of time.

Ford said that in the end of march it had more than 20 thousand vehicles parked and waiting for chips, G.M over the summer they said they had 30 thousand pickup trucks at a plant in Missouri.

While these strategies have helped the companies to keep going in the short term it’s also
forced them to plan for the future by rethinking the entire process for decades the auto
industry has really kind of perfected, this just in time model where components arrive at the
factory and even right at the assembly line just as they needed that allows them to lower their
inventory cost and there are lots of efficiencies that go with that, but the chip shortage has
shown this model breaks down during global crises like the pandemic.

Companies are looking at moving to stockpile crucial computer chips, there is been direct outreach from auto executive to chip suppliers which hadn’t been happening in the past & auto companies not
only want visibility in the supply chain but also more direct control, some of the companies
have talked about even getting more involved in designing their own chips, designing
components to need fewer chips and ford specifically has talked about that.

There is also a push from the United States government to shore up its domestic chip-making
capacity.

Their administration prioritizes increasing domestic chip manufacturing by
investing roughly 50 billion dollars in research and development.

But building new foundries and increasing chip production will take time and that means automakers will likely continue to scale back production. In early September G.M temporary idling two main factories that
produces its pickup trucks while ford said it temporarily halting the production of its F-150 at
it’s Kansas city factory in Missouri even some of the more chip-ready automakers like
Toyota said that it would cut production in Japan by 40 percent in September and in the short
run all this won’t be good news for consumers, there just simply aren’t enough cars according
to demand of market and it is directly creating a huge demand and instability in the
automobile market.

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