A look at the roots of the chip shortage

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As the COVID-19 pandemic accelerated in the spring of 2020, automakers reduced chip orders due to a projected decline in new car sales. But when auto demand in the US abruptly returned, they found that they had lost their place on microchip delivery lines, behind device makers, electronic game companies, and a host of chip-hungry television, laptop and cell phone manufacturers. Consumers ordered chip-operated toys and digital comforts for staying at home – all while purchasing vehicles online to replace existing vehicles and avoid public transportation.

Government measures exacerbated the problem. Europe and the US passed regulations on high-end consumer products that required chips to meet new energy efficiency requirements.

The US also sanctioned several Chinese electronics companies like Huawei, which hindered their access to materials and critical high-tech devices for US chip manufacturing. So these companies were stockpiling chips to weather the US regulatory storm, and that created an additional man-made shortage.

Another shortage of supply was a fire in March at the Japanese supplier Renesas.

Finally, the long-predicted switch to electric and connected vehicles took off. A typical luxury vehicle needs roughly 1,300 chips to perform its microprocessor controlled tricks. An EV needs twice as many. As a result, some experts say that most chip prices and supplies will likely not return to normal until mid to late 2022.


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