Automakers Rethink Supply Chains to Prevent Future Chip Shortages

Learning From the Past

A shortage of semiconductors has cost the automobile industry hundreds of billions of dollars in lost sales as they have been forced to idle plants due to a lack of chips. While it’s not clear when the chip inventory situation will improve in the semiconductor market, car makers are doing everything in their power to prevent manufacturing delays in the future. As cars become more high-tech in the coming years, they will require even more chips.

From Toyota (TM) to Tesla (TSLA), automakers across the world are making plans to prevent a shortage of semiconductors in the future. Some are bulking up their inventories while others are inking supply contracts with chip companies. It is estimated that the auto industry will lose $210 billion in sales in 2021. Companies want to do everything they can to stop this trend.

Chip, Auto Company Partnerships to Deepen

It is expected that vehicle makers and semiconductor companies will work more closely together in the coming years. Semiconductors are projected to account for 20% of the costs of materials in high-end cars by 2030. In 2019, that number was just 4%. This trend could prompt some of the biggest automakers to develop their own semiconductors or to form deep strategic alliances with existing chip companies.

This is already happening in the battery market, where a dearth of batteries is slowing EV production. Toyota said earlier this month it is spending over $13.5 billion by 2030 to produce batteries, while GM plans to spend $35 billion on its electric vehicle push by 2025, including opening two new battery plants.

In-House Chip Operations

Tesla is already taking microchip development in-house, recently showing off a new chip which can train AI networks. Tesla has previously relied on Nvidia (NVDA) for its most advanced chips, but in the past few years it has been shifting to more in-house development. Meanwhile, Volkswagen (VWAGY) has said it plans to design its own chip but it will not be involved in manufacturing. Mercedes-Benz (DMLRY) is also looking at in-house chip development.

With electric vehicles taking off and cars requiring more chips, semiconductors are playing more of a central role in the auto industry. It will be interesting to watch as automakers work to make sure their woes from chip shortages don’t continue.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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