When it comes to the global shortage of semiconductors, manufacturers are still undoubtedly feeling the strain, and there’s no immediate end in sight just yet. This has particular implications for the automotive industry.
It was difficult enough to meet demand for semiconductors particularly for automotives in normal circumstances to begin with, because they take far longer to make than other car parts and they cost significantly more. But current demand is exacerbating these problems even further.
The initial shortage was borne as a result of increase demand for computers, tablets, and smartphones during the onset of pandemic, when remote work became commonplace. This diverted supply away from the automotive sector, leaving it in its dire current state.
But the pandemic wasn’t the only cause of this issue – a normal of unforeseen circumstances led to the crippling chip shortage we are currently facing, like the heavy storm Texas experienced last year that led to widespread power cuts. 12% of the entire world’s microchips are made in the US, with a large portion of those coming from Texas. Therefore, one of the world’s hubs for microchip production was shut down for long periods of time.
Effects on sustainability efforts
The semiconductor shortage is actually linked to lack of progress in sustainability efforts. The shortage means that demand for electric vehicles can’t be met, and neither can the rollout of new electric vehicle chargers or repairs. Though the transition to EVs is still sluggish in many parts of the world, it is picking up pace and demand is only continuing to grow. The worst impacts of climate change are expected from the transportation sector, and this chip shortage and subsequent lack of EVs available to those who want them is delaying the decarbonisation of an emissions-intensive industry.
This expands beyond EVs as well. Semiconductors are key materials in a number of sustainability technologies, and their shortage can negatively affect the overarching clean energy transition. Furthermore, there is the danger that as manufacturers frantically work to increase their semiconductor production capabilities, they will forego environmental standards in an attempt to deliver on time and rush the rollout of these valuable parts. This is not to mention that the semiconductor industry in generous uses large amounts of hazardous chemicals and contributes significantly to air pollution. Therefore, a circular economy for semiconductors must be built to address the multi-pronged challenges the industry is currently facing,.
What’s happening now?
Technology firms are investing heavily in semiconductor production as demand for electronic goods doesn’t seem to be letting up anytime soon. Toshiba, for example, is investing nearly £800 million in their manufacturing facilities to increase their production capacity by double, building a new factory in Japan that is expected to open by March of 2025. Contrariwise, companies like Toyota are missing the mark, with the company expected to miss their vehicle production target of nine million due to fierce competition for semiconductors.
The US is working especially hard to increase production capabilities within their borders. The Biden administration has finalised a “Chips Bill” that, if approved, would generate approximately $50 billion of funding to subsidise the manufacturing, research, and development of microchips.
Many businesses have looked to ways to reduce their chip needs through a number of digitalisation efforts. If you’ve been holding back from migrating all your data to cloud services in your business, now may be the time to take the plunge. This isn’t realistic for every business, but adopting cloud services to reduce dependence on internal hardware may be a way to curb the blow of extremely long wait times for said hardware.
Conclusion
Unfortunately, the chip shortage isn’t the last of our problems when it comes to the overall transition to electric vehicles. Cost of materials continues to prove a problem, as do other factors. However, despite all of this, demand for EVs is continuing to accelerate.
It’s important for supply chain businesses to continue to monitor their suppliers, diversify where necessary, and employ strategic talent acquisition practices to ensure that they are best prepared to handle this particular shortage and more to come. To discuss how you can build a workforce to help you navigate these challenging times, feel free to connect with me on LinkedIn to discuss a best course of action.
Be sure to follow us on LinkedIn to stay up-to-date with all the latest trends and developments taking place across the end-to-end supply chain. Proco Global remains available to discuss any of the trends mentioned above and how we can help your business implement your vision of the future. For more insights, visit https://www.procoglobal.com/insights
