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Despite media assurances to the contrary, a global automotive chip shortage continues, and the primary semiconductor industry might experience constraints throughout 2023, if not longer. And while select data does suggest that scarcities have turned to surpluses in specific markets, the reality is more complex than those numbers imply, with several geopolitical and global economic events continuously changing those forecasts.
This article discusses some of those instances as part of our car chip shortage update as we begin the 2023 calendar year.
2023 Car Chip Shortage Update: 3 Developments to Watch
Dealers should be aware of the following three global developments, all of which will impact chip supply and demand:
1. The Benefits of New Legislation Will Take Time
As mentioned in our automotive chip shortage article in August of last year, global events, including the COVID-19 pandemic and the Ukraine conflict, resulted in supply chain disruptions leading to a worldwide chip scarcity that negatively impacted many significant industries, notably automotive.
At the same time, chip demand had been skyrocketing due to the increased adoption of digitization, including:
- Digital cars
- Gaming consoles
- “Smart” appliances
- Quantum computing
- Internet of things (IoT)
- 5G buildouts
The struggle to deliver chips and a greater demand for digitization resulted in a perfect storm of events that prompted the government and commercial chipmakers to make unprecedented investments abroad and in the US.
These investments included the CHIPS and Science Act, which provides $52 billion in grants and subsidies for new semiconductor fabrication plants (fabs). Reports show seven key semiconductor companies will invest more than $200 billion in those fabs in the coming years.
However, despite the expected benefits of the CHIPS Act and other regulations worldwide, new fabs will not be available for a few years. As a result, global semiconductor shortages remain, and the industry might experience constraints throughout 2023 as demand for semiconductors reaches an all-time high.
2. Developments in China and Taiwan Will Stress the Market
Another factor that could affect the semiconductor industry is the escalating hostilities between China and Taiwan. American tech companies rely heavily on Taiwan for their semiconductors, as Taiwan supplies over 65% of the world’s semiconductors and about 90% of the smallest and most advanced chips.
A military invasion of Taiwan could severely hamper many companies, most notably the Taiwan Semiconductor Manufacturing Company, from producing those components.
Further muddying the waters is new export laws related to the CHIPS act. To marginalize China’s semiconductor presence, the US prohibits the transfer of domestic chips and chip-making equipment to China.
With effect from October 2022, the most recent sanctions also limit US citizens who help design, manufacture or use integrated circuits at chip factories in China. These regulations are wide enough to cover US citizens, US residents, and those with US green cards.
3. Inflation is Deprioritizing Electronics
Reports suggest that the shortage is dissipating due primarily to a decline in demand stimulated by changes in the macroeconomic environment.
More specifically, a prolonged inflationary environment is catapulting the costs of many necessities, including:
These higher prices for everyday needs reduce the demand for wants, including many “luxury” items (like those listed above) requiring semiconductors.
Additionally, post-pandemic consumer behavior is changing. Spending is returning to being more heavily centered on services than on goods. As a result, 2022 year-end global semiconductor sales decreased by over 6% from the summer.
As a result, in specific cases, many businesses currently have an excess of chips rather than a shortage. While manufacturers tried to increase production, chip buyers made excessive orders and accumulated inventory. Numerous companies still hold excess inventory due to large stocks and declining demand.
However, this data is somewhat misleading, and these developments do not necessarily signal an impending end to the global chip shortage. Chips are not an interchangeable, homogenous good. Numerous types of chips perform a wide range of specialized jobs, and diverse sectors have specific needs. Scarcity may subside or persist depending on the type of chip and the industry.
Battling an Uncertain Chip Supply Requires the Best Technology
Chip demand over the long run will increase as digitization develops, and supply might likely catch up, albeit slowly. Due to the recent passage of the legislation described above, many businesses have begun constructing brand-new facilities in the US. Still, it will take time for those fabs to begin production.
International developments will also play a significant role in chip availability. As China’s tensions with the US and Taiwan escalate, global chip supply will undoubtedly be affected for the worse.
This uncertainty heralds a foggy future for dealerships nationwide as unforecastable new car inventories complicate navigating a volatile market. You need the best tools to execute this successfully and efficiently to maximize profits and withstand a potential extended inventory shortage.
Contact us today and learn how Affinitiv’s proprietary, data-driven solutions can help your dealership make the most of what inventory you have during these volatile times.
All | February 08, 2024