April 1, 2021
Automotive industry manufacturers are struggling to get enough chips to build their products—from airbags to navigation systems. This global electronics parts shortage is the result of several factors: pandemic-related work stoppages, increased demand, and broken transportation logistics. As a result, automotive manufacturers worldwide are expected to lose more than $14 billion in revenue in the first quarter of 2021 and approximately $61 billion for the year, as predicted by advisory firm AlixPartners.
Because updating components requires complex internal checks to ensure safety and durability, automakers are often slow to do so. Keeping track of and aligning with shifts in the auto market is difficult, and meeting unexpected demand in this sector isn’t as simple as launching another production line and hiring more staff.
At the beginning of the COVID-19 pandemic, car companies assumed that the demand for cars would decrease, so they reduced their semiconductor purchases. At the same time, demand for consumer electronics rose, so semiconductor manufacturers reallocated their production.
However, soon automakers saw that their assumptions were incorrect: car demand increased. So they decided to return to their production volume plans and tried placing chip orders again. But manufacturing lines were already busy with consumer electronics orders, and switching back to automotive components would require going through the lengthy and costly process of parts revalidation. To make it even worse, prices for many components had increased 5% to 10%.
Chip shortages can be a major hurdle for car manufacturers. For startups and design houses, although they may face similar shortages, it is more easily overcome. Below you will find some useful tips for design houses on how to prepare for this challenge, based on our own experience, and practical advice for automakers to implement at large scale.
For startups and design houses working on development of new solutions, the lack of electronic components is not immediately crucial. The design process is lengthy and may take a couple of years. Even if some particular automotive chips are temporarily not available in production volumes on the market, new solutions can be developed with 3-5 samples of those chips while hoping that the supply will improve before the manufacturing stage (several chip samples are always affordable, regardless of their temporary high costs). However, in some situations, the best option is chip replacement.
Here is the checklist we use as a design house to handle the issue of electronic parts shortage and adjust component supply:
Remember, car makers preferring a just-in-time ordering approach are moved to the back of the line for future chip shipments.
Thus, the procedure of chip replacement at the design stage is quite standard and requires technical expertise, but not large budgets. You can always turn to our engineering teams for consultations or solution development.
Manufacturing may require millions of chips, and here the global electronic components shortage becomes a true challenge. Consider the following practicalities to mitigate problematic lead times:
Since the production of modern cars relies on hundreds of computer chips, the automotive industry should have flexible and agile supply chains. This will help meet unexpected changes in demand and supply and increase resilience.