Semiconductor Shortage Could Soon Become A Glut Of Chips

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The shortage of semiconductor chips required for advanced technologies will soon turn into a surplus, reversing the semiconductor shortage that has afflicted the automotive industry for the majority of the previous two years. VNC Automobile, an in-vehicle networking specialist, believes that the possibility of a recession may trigger a surplus.

“It’s ironic that the very situation that triggered the shortage for much of the automotive industry should be driving the recovery, now that it has become reversed due to the prospect of recession,” says Tom Blackie, CEO, of VNC Automotive.

As the epidemic spread and working from home became the norm for many, supply chain disruptions brought on by a number of disasters at important production facilities were compounded by a sudden increase in demand for electronic devices.

However, consumers have been quick to cut back on their spending as a global recession looms and a cost-of-living issue begins to bite. Smart consumers are opting to keep their current equipment for extended periods of time rather than upgrading to the newest smartphone or getting a new laptop on credit.

The automobile sector has jumped on the opportunity presented by this decline in consumer goods demand, which has freed up production capacity across the whole supply chain, from chip manufacturers to logistics.

“In fact, such has been the speed of the shift to oversupply that we are regularly approached by chip suppliers asking if we’d like to increase our orders,” says Blackie.

Industry analysts have noticed an increase in cancellations from manufacturers of more complex products like tablets and smartphones as well as producers of white goods, which are more high-tech than ever.

Because of this need for computing power, major IT firms like Intel and Nvidia have developed a significant presence in the automobile industry. As vehicles have become more sophisticated, connected to a wider digital ecosystem, and increasingly characterized by their software. This platform alignment has also made it easier for car manufacturers to take advantage of a growing surplus of these high-power CPUs.

“In the past, the auto industry has had a rather adversarial relationship with chip suppliers, always gouging on price and making little in the way of future commitments,” says Blackie. “I think it’s been realized that automakers are small players in comparison to some of the other industries chip fabs are used to working with and that a new, healthier relationship is called for.”

According to Gartner, the $38.7 billion global semiconductor market in 2020 was less than 9% accounted for by the automotive sector. As EV manufacturing rises and advanced driver assistance systems and autonomous vehicles require ever-increasing amounts of processing power to handle the most cutting-edge AI algorithms. It is projected to skyrocket to just over $116 billion by 2030. According to Gartner’s statistics, the average amount of semiconductors in a car will increase from about $712 in 2022 to $931 in 2025.

“It may still take some time for this freer-flowing supply to trickle down to car-buying consumers, as manufacturers work to clear the backlog that’s accumulated over the last couple of years,” says Blackie. “But in a time of economic gloom, it’s good to find a cloud with a silver lining.”

In 2021, GM saw a drop of one-third from a year earlier due to chip shortages that forced it to idle plants, leaving dealers with fewer vehicles to sell to interested customers. Many automakers had attempted to fill needs with electronic components they already had on hand for their most profitable pickup trucks and large sport utility vehicles.

The average selling price of a new vehicle in September 2021 was $42,802, up more than $12,000 from the same month in 2020. But it looks like soon there may be enough chips to go around, if VNC’s prediction is correct.

Source: VNC Automotive

Featured photo: by Laura Ockel on Unsplash

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