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.
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS21092801
All your finances.
All in one app.
App Store rating
