Automakers around the world will likely be forced to continue production cutbacks in the coming months before a global semiconductor supply shortage can be resolved, industry experts say.
Japan's Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. have said they partially halted production at factories around the world due to the chip shortage just as they began recovering from pandemic-forced plant shutdowns.
Demand for chips, widely used in electronic devices including those in vehicles, has been surging across various sectors since last fall as the global economy picked up.
"A gap in demand and supply for semiconductors suddenly occurred late last year due to a coincidence of some events including a sharp recovery in global auto sales, robust sales of smartphones and installment of the 5G networks," said Yoshiharu Izumi, senior analyst at SBI Securities Co.
As video game sales jumped with people spending more time at home, robust production of game consoles ahead of the rollouts in November of Sony Interactive Entertainment Inc.'s PlayStation 5 and the Xbox Series X console from Microsoft Corp. also contributed to the chip supply crunch, experts say.
Chip suppliers diverted their production to consumer electronics and network products when the auto industry was going through its worst time after the pandemic hit. The automakers could not procure enough semiconductors as the market began recovering at a pace faster than initially expected.
Trade tensions between the United States and China have also contributed to the chip supply crunch after the U.S. Commerce Department added China's Semiconductor Manufacturing International Corp. to its trade black list in December, citing its close relationship with the Chinese military.
Motor vehicles are now loaded with electronic devices and each is said to have between 50 and 150 chips.
"The chip shortage appears set to continue during the first half of the year," SBI Securities' Izumi said.
Rapidly increasing the output of chips is not easy as building a new production base typically takes at least several months, experts say.
The global chip shortage has already caused auto production to decline by over 500,000 vehicles globally and a further drop of nearly 300,000 vehicles is expected this year, according to data provider Auto Forecast Solutions.
German auto giant Volkswagen AG has been forced to reduce working hours of employees at some plants in its home country to cut production, a company official has said.
In January, German Economy Minister Peter Altmaier sent a letter to the Taiwanese government asking for help in urging semiconductor makers in the region, including Taiwan Semiconductor Manufacturing Co. which is one of the world's largest chip foundries, to raise their output, with the Japanese and U.S. governments joining the plea.
General Motors Co. said Wednesday it will cut production at four plants in the United States, Canada, Mexico and South Korea, while Mazda Motor Corp. President Akira Marumoto said Thursday his company will review its output plan "factoring in a possible reduction of 7,000 units in February."
The supply shortage should ease in the latter half of the year, but automakers are likely to face higher chip prices, industry experts say. Coupled with the output fall, rising prices could cause a slowdown in automakers' profit recovery, they say.
Japanese chip suppliers Renesas Electronics Corp. and Toshiba Corp. have been negotiating an increase in prices of their chips.
"It seems difficult for automakers to avoid an impact on their earnings," said Koichi Sugimoto, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co.
"The chip shortage has already hampered rollouts of new models at some automakers," Sugimoto said.
