SecuredVC Reports – Chips and Cars: The Unlikely Backdrop of the Pandemic
Via ZEXPR, It has officially been over a year ever since global lockdown orders were issued but it is only now that we are truly facing the consequences of those lockdowns. Back in February 2020, many manufacturers including car companies cancelled thousands of orders for chips used in auto-motives for electronic systems. This was done in anticipation of a global lockdown that did eventually take place in March 2020.
The primary industries involved in this situation are the chip manufacturers and assembly plants where cars are put together in their final phases. Now, chip manufacturing plants are extremely clean. They are deep cleaned every week even under normal conditions and the risks of an outbreak is highly unlikely since these sites are mostly automated and do not require a large staff to be operated. The people who do work there are regularly tested but again it is very unlikely for a chip manufacturer to be at risk of any COVID-19 outbreak.
SecuredVC analyst explores how the automobile industry and the computer chip industry suffered during the pandemic and struggled to keep their financial status above grade.
The Stumbling Car Manufacturing Plants
The primary issue remains in car assembly plants where parts from different manufacturing sites arrive to be assembled in the final phase. While many car manufacturing plants have been automated in recent years, their percentage is limited in the industry and many conventional car manufacturing plants still utilize human labour as their basic workforce even if there are some tasks assigned to automated systems. This poses a threat for an outbreak since, in the assembly life of a car, hundreds of workers touch it before it is given a final clean when it is sent as a selling piece.
Therefore, car manufacturing plants were at the most risk which is why they were the ones who took drastic action and cancelled pending orders. Car companies figured that at most their manufacturing plants would be shut for a month or two but as we know the lockdown persisted for over a year and is still in place in many regions of the world. New lockdown orders are being issued in manufacturing hubs such as India, and some regions of Europe where there have been recent spikes in outbreaks of the coronavirus.
The Global Chip Shortage
While chip production was not reduced as a direct result of the implementation of lockdown procedures, it was influenced by the cancelling of orders and ever since chip manufacturers have been unable to catch up with the increased demand by car producers since there has been a sudden influx in orders. Car companies realized that the lockdown would go a lot longer than expected which resulted in many car companies placing huge orders for their plants. However, due to limited operational capacity and delay in the sourcing of essential products for development, chip producers have been unable to keep up with the increasing demand.
Things have gotten so bad that many car companies have had to halt manufacturing altogether which has affected millions of jobs all across the industry. Many chip manufacturers have also had to operate at limited production capacity as a result of the initial cancellation of orders by companies. The production lines capable of producing chips at high rates are sitting idle at the moment since it takes a lot of investment and upsizing to restart a powered-down production line.
A Step Towards Normalisation
Things have started to go back to normal with many manufacturers starting to receive their orders but the demand still outnumbers the production capacity of the large chip manufacturers TSMC and SAMSUNG. TSMC has begun the development of the essential chips used in fuel injectors and smart cars already and many car companies have been able to restart their R&D departments since things are moving towards normalization.
Assembly plants have started to operate in minimum capacity ever since the release of multiple vaccines that have been made available to the workers. But even now the dangers of spreading the virus remain high with cases increasing every day. The situation in India, one of the biggest manufacturing hubs in the world, has gotten so worse that there are now make-shift crematoriums in many of the industrialised regions of the country.
The global chip shortage is expected to last until the 3rd quarter of next year and that is if the lockdown is lifted within a couple of weeks which at this moment do not seem possible. It is more likely that the chip shortage will continue into its 3rd year although there have been reports of chip production gaining steam in recent weeks. This is due to the emergency funding provided by the Biden presidency where billions of dollars have been released to help the industry ramp up production to ensure a constant supply of parts to the tech-based industries since the world’s economic system is dependent on them.
The global chip shortage is the result of sudden decisions made to minimize loss where it might have done the opposite. For months car manufacturing plants remained idle waiting for parts to arrive which is essentially lost time that could have been used to generate revenue. It just shows that when even a little chaos is introduced into a streamlined system, it can break beyond repair. Right now, the only hope for the car industry is to hope the pandemic subsides and mass vaccinations effectively reduce the risks of infections.
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