The global chip shortage has had a major impact on the automotive industry over the past couple of years. With consumers demanding more tech-heavy features in vehicles, automakers have become increasingly reliant on semiconductors. However, supply chain disruptions and surging demand during the pandemic led to a severe shortage of chips. This resulted in production delays and low inventory levels for many car companies.
As we head into 2023, the big question is: Will the chip shortage continue to be a problem for automakers? In this article, we’ll examine the current state of the chip shortage, outlook for 2023, and the potential impact on new car production and sales.
What caused the chip shortage?
The chip shortage was caused by a perfect storm of factors converging during the COVID-19 pandemic:
– Surging demand for consumer electronics – With more people working and studying from home, demand spiked for items like laptops, tablets, and gaming consoles. This put pressure on chip supplies.
– Automotive production cuts – Early in the pandemic, carmakers cut chip orders, expecting reduced demand. But demand rebounded faster than expected.
– Supply chain disruptions – Chip manufacturing was impacted by factory shutdowns, shipping delays, and natural disasters. A drought in Taiwan and a cold snap in Texas affected production.
– Stockpiling – Some companies overordered chips and hoarded supplies to hedge against shortages. This further constrained supply.
How has the shortage impacted the auto industry so far?
The chip shortage has dealt a heavy blow to automakers over the past two years:
– Lost production – Millions of vehicles have been cut from production plans due to lack of chips. Toyota alone has cut output by over 1 million cars.
– Plant shutdowns – Automakers have had to halt production at some plants temporarily due to chip shortages. For example, GM suspended production at several North American plants for weeks or months.
– Record low inventory – Dealerships have had little new inventory. In 2021, average dealer inventories fell below 1 million vehicles for the first time ever.
– Price increases – With tight inventory, automakers have dialed back incentives and rebates. New and used vehicle prices have surged.
Outlook for 2023
Most industry experts expect the chip shortage to gradually ease in 2023 rather than disappear entirely. Here are some key factors that will determine how much of an issue it remains:
Increasing chip supply
Major chip makers like TSMC and Samsung are ramping up investments to increase production capacity over the next year. Many new semiconductor fabrication plants are slated to come online. This will help boost supply.
However, it takes time to build new fabs, so the full impact won’t be immediate. Supply is expected to remain tight through much of 2023.
Chipmakers allocating more capacity to auto industry
As the shortage drags on, chip makers are allocating more capacity specifically to automakers. For example, battery management chips are being prioritized for automotive customers.
This should provide some relief relative to 2021-2022 when production for consumer electronics often took priority over cars.
Changing chip requirements
Automakers are redesigning vehicles to reduce dependency on scarce chips. For example:
– Eliminating features that require certain semiconductors
– Substituting alternative chips that are more readily available
– Consolidating functions to lower overall chip usage
This will gradually help align chip demand with available supply.
Softening consumer electronics demand?
If economic headwinds develop, demand for consumer electronics like smartphones and PCs may cool off. This could take some pressure off chip supplies.
However, the auto industry will still have stiff competition from consumer tech demand in 2023. Cars use many legacy chip fabrication processes that other industries also rely on.
Potential Impact on 2023 Auto Industry
The chip outlook will shape automakers’ production and sales in 2023. Here are some potential implications:
Gradual recovery in production and inventory
With chip supply improving, production cuts should moderate in 2023. Total new car output could rise by 8-10% after falling sharply in 2021-2022.
Inventory levels will steadily grow as well. However, they may not reach pre-shortage levels until 2024 or beyond.
| Year | Total US Light Vehicle Production |
|---|---|
| 2019 | 16.8 million |
| 2020 | 14.6 million |
| 2021 | 13.0 million |
| 2022 | 12.7 million (est.) |
| 2023 | 13.5-14.0 million (forecast) |
Gradual normalization of vehicle pricing
As inventory levels slowly improve, automakers will likely ease back on price hikes. Incentives and discounts may also reappear.
However, strong underlying demand means prices are unlikely to fall dramatically. They should return to more normal levels over 2023. Used car prices should also moderate.
Some model-specific shortages
While overall chip supplies will improve, shortages of specific components could still temporarily impact certain models. For example, if a chip used in a popular SUV is scarce, it could limit production of that vehicle.
So consumers may still encounter low inventory and delays for some high-demand models. This may prompt automakers to focus production on their top sellers.
More options for electric vehicles
EVs require far fewer chips than gas vehicles, making them less vulnerable to shortages. In 2023, a wider range of EV options should become available as startups ramp up production.
Legacy automakers will also expand their electric lineups. This could boost EV sales, especially if gas car inventory remains tight.
Conclusion
In summary, the chip shortage is expected to gradually improve but remain a constraint on the auto industry in 2023. Supply should inch closer to demand, allowing automakers to rebuild inventory and normalize new vehicle pricing. However, production may not fully recover to pre-shortage levels until 2024 or later.
The shortage will still result in lower output and tight supplies, especially for popular gas models. But increased EV production could give consumers more options. So while the chip crisis persists in 2023, the inventory picture should begin turning a corner.
