China’s car production affected by chip shortage

A chip is used in today’s smart cars, due to its shortage, the car manufacturing is slow around the world and impact can be seen in all over the world. The direct impact can be seen on the Chinese car market.

The lack of semiconductors, which have become vital for increasingly smart cars, is affecting car plants around the world, forcing carmakers to halt production. The effect can be seen at car dealerships in China, where the push to adopt electric and hybrid cars, which China calls new energy vehicles (NEVs), has been upended by the chip shortage.

A Mercedes-Benz showroom in downtown Beijing, a huge exhibition space surrounded by high-rises and luxury shopping malls, used to be filled with the company’s new electric EQC cars, but it just had one single model when the South China Morning Post visited last week.

“Other exhibition cars were all picked and sold,” said the shop’s dealer surnamed Yu. “You are not going to get any Benz cars delivered in Beijing soon … the company has cut sales because of the chip shortage.”

When all the necessary parts are available, the all-electric SUV can be assembled in Beijing and delivered within 10 days, Yu said, but now it takes at least two months.

Traditional carmakers are bearing the brunt of chip shortage, as they were largely caught off guard by the sudden contraction in semiconductor supplies. As companies continue to add hi-tech features such as entertainment and autonomous driving, cars are using more chips than ever. A premium brand might require more than 3,000 chips for a single vehicle, and if just one is missing, it cannot be completed.

Car output in China dropped 6.8 per cent in May to 2.04 million vehicles compared with the same month last year, and sales fell 3.1 per cent to 2.12 million units, according to data from China’s Ministry of Industry and Information Technology (MIIT).

China’s own car brands have been less affected by the chip crunch, at least for now. The dealer at a showroom for Marvel R, an electric car brand under state-owned SAIC Motor, said the new SUV line has seen a limited impact from the chip shortage because “their sales are not big”. Marvel R buyers can expect to see their new car show up within two weeks, she said.

NEV output in China surged 150 per cent in May over last year to 217,000 units, and sales expanded 160 per cent in May, with the sales volume nearly matching output for the month, according to China’s industry ministry.

The chip shortage, which started to emerge in the second half of last year, is projected to cost carmakers 3.8 million units in lost production, or about 5 per cent of estimated annual sales for 2021, according to Fitch Ratings. In response, companies are prioritising their most lucrative models to meet strong demand.

In a report last month, tech research firm Gartner said the chip shortage could persist until the second quarter next year, as foundry capacity continues to run tight.

The chip shortage is widespread in the auto industry now, and the bestselling models made in China could be delivered within a month, according to an industry insider at one of the country’s largest car manufacturers who spoke on the condition of anonymity. He said the suppliers and equipment manufacturers are all suffering from the disruption.

The Chinese government has been working to address the problem, tasking the MIIT to compile supply and demand information to help match the country’s car plants with chip makers.

Meanwhile, China’s integrated circuit (IC) output surged 37.6 per cent from a year ago to 29.9 billion units, according to the National Bureau of Statistics. IC imports also rose 30 per cent in the first five months of the year compared with the same period in 2020, reaching 260.35 billion units, or nearly double China’s domestic output in the same period.

C.C. Wei, CEO of Taiwan Semiconductor Manufacturing Co (TSMC), warned in April that the chip shortage could last into 2022. However, he said that the shortage of car components for customers of TSMC, the largest contract chip maker in the world, could be reduced by the second quarter this year.

Unlike the more advanced process nodes used for making chips in the latest smartphones and computers, cars can generally get by using a 28-nanometre node process or larger, which are not subject to trade sanctions from the US.

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