Showing posts tagged 'pandemic'
15 September 2021
Chip Shortage causing car manufacturers to cut production levels
A week doesn’t pass without an announcement from a car manufacturer that they are cutting production levels. Idling shifts and even entire factories has become normal for an industry that thrives on maximising output.
Volkswagen, Ford, General Motors, Hyundai and Toyota have cut production levels to prioritise their most lucrative models. In some cases, plants have shut down for weeks at a time to allow supply chains to catch up to one another.
To understand how big this is, a 1-2 week plant shutdown will cost a car manufacturer millions of pounds at the very least. No manufacturer would willingly do this, but the global chip shortage is forcing them to.
Chip shortage in numbers
Just 53,438 cars rolled off assembly lines in the UK in July 2021, making it the lowest output in the month of July since 1956.
In June 2021, data from the Society of Motor Manufacturers and Traders (SMMT) showed that car production was down 52.6% on the same month in 2019, telling us that we’re a long way off reaching pre-pandemic levels.
According to research firm AlixPartners, the chip shortage will collectively cost the auto industry $110 billion in revenue in 2021 - a revised figure and an increase of 81.5% over the same firm’s figures in late January.
More telling figures come from Fitch Ratings, who estimate the chip shortage will cost automakers 5% of production. North America and Europe will be the hardest hit, with Asia and China coming in third and fourth respectively.
What’s happening with chips!?
The automotive sector has been hit harder than any other by the chip shortage due to cancelling orders for chips at the start of the pandemic.
Anticipating a slowdown that would last months, most car markers cancelled orders for chips. Semiconductor manufacturers filled order books with orders from companies making smartphones, laptops and other devices.
When the automotive sector bounced back sooner than expected, semiconductor manufacturers had hardly any capacity to meet demand. This has led to the situation today, where car makers can’t secure the inventory they need.
Now, there are not enough chips, foundries are running at 99% capacity and new foundries take years and billions in investment to set up.
Changing the production line for a chip costs tens of millions and takes months, labour shortages are causing a manpower crisis, and the pandemic is causing short-term factory shutdowns at foundries and fabless plants.
When will the global chip shortage end?
It will take at least five years for the global chip shortage to subside, assuming investment in new foundries begins in 2021/22. New factories are the only the way out of the shortage because demand for chips is only going to increase.
Opinions on when the shortage will end vary from early 2023 to 2025. The last 18 months has tested supply chains and wreaked havoc on production, but the automotive industry is experienced enough to cope with future problems.
When you need to source hard to find electronic components quickly because of allocation, long lead times, obsolescence or quality issues, contact Cyclops Electronics for a fast response to your enquiries and a reliable on time delivery.
01 September 2021
Component Prices Rise 10% to 40% - But why?
While component price rises are expected when demand outstrips supply, the scale of recent increases has come as a shock to many businesses.
In its Q3 Commodity Intelligence Quarterly, CMarket intelligence platform Supplyframe reports that some electronic components have seen prices rise by as much as 40%, making it uneconomical for products to be made.
In particular, semiconductors, memory, and modems are seeing 10 to 40% price increases, exceeding what most analysts envisioned for 2021.
Why are prices rising?
Price rises start with materials. There are long lead times for many raw materials, causing shortages. Add rising commodity prices and difficulties transporting products and you have a disrupted manufacturing economy.
You also have to factor in the impact of the coronavirus pandemic, which has caused labour shortages and disrupted the manufacturing economy with shutdowns.
Logistics is also a big fly in the ointment for electronic components. The industry is recovering from COVID-induced shutdowns and travel restrictions are causing problems at borders, creating delays that ripple through the supply chain.
Supply and demand
The bulletproof economics of supply and demand also rule the roost for electronic components, and demand is higher than it has ever been.
We are in a situation today where most electronic components manufacturers are running at 99-100% capacity and can’t keep up with demand.
Demand is outstripping supply for chips, memory and communications components like integrated circuits, discrete circuits, optoelectronics and sensors, creating a bidding war as manufacturers scramble to get what they need.
Growing demand for new technologies
Emerging technologies like artificial intelligence, machine learning, virtual reality, augmented reality and edge computing are fuelling demand for smarter chips and data centre modernisation, while technologies like 5G and Wi-Fi 6 are demanding infrastructure rollout, which requires significant investment.
Across the board, technology is booming. Manufacturers are making more products for more people, and they must do so while balancing costs at a time when component prices are rising - no easy feat even for established businesses.
Everyone is raising prices in line with their own cost increases, from semiconductor manufacturers to outsourced fabs and suppliers. At 10 to 40%, these increases are putting pressure on supply chains and businesses.
How many price increases will target markets absorb? How can we sustain production without significant margin pressure? These are the challenges facing manufacturers, who are stuck between a rock and a hard place right now.
There are a few solutions:
- Equivalents: Source equivalent components from different brands/makers/OEMs that meet size, power, specification, and design standards.
- Use an electronic components distributor: Distributors are the best-connected players in the industry, able to source hard-to-procure and shortage components thanks to relationships with critical decision-makers.
Prices will fizzle down, eventually
Although research published by Supplyframe says pricing challenges will remain through early 2023, they won’t last forever. Price rises should fizzle out towards the end of 2021 as manufacturers catch up to orders and reduce disruption.
If you are experiencing an electronic component shortage, we can help. Email us if you have any questions or call us on 01904 415 415 for a chat with our team.
04 August 2021
Chips shortage limits auto production in Brazil and the rest of the world
“Never seen anything like it,” Tesla’s Elon Musk tweeted last month about the global chips shortage, “Fear of running out is causing every company to overorder - like the toilet paper shortage, but at epic scale.”
If you want a prime example of the chips shortage, look to Brazil.
In 2020, the automotive industry in Brazil was hit hard by chip shortages and the coronavirus pandemic. Approximately 1.61 million passenger cars were made in 2020, a decrease of over 34% compared to the following year.
2021 got off to a flier… then grounded
2021 got off to a much better start for Brazil, with 1.14 million passenger cars leaving the production line in in the first half of the year, a 57.5% increase compared to the same period last year. However, production has hit a ceiling.
Brazil's Association of Automotive Vehicle Manufacturers, ANFAVEA, has disclosed that because of chip shortages, Brazil missed its target for automotive production in the first half of 2021, and the numbers cited are startling.
According to ANFAVEA, some 100,000 to 120,000 passenger cars were prevented from entering production by the chips shortage. In June, only 166,947 passenger cars were made, the worst figures of any month in the last 12 months.
Manufacturing limitations created by the chips shortage have been compounded by the coronavirus pandemic. Brazil has seen 19.8m coronavirus cases with a 2.8% mortality rate, sadly resulting in over 500,000 deaths.
The biggest factories are struggling in Brazil
More than 20 plants in Brazil run by the likes of Volkswagen, Mercedes-Benz, General Motors, Nissan, Toyota, Renault, Volvo, Scania and Honda have shut down temporarily in 2021 because of the chips shortage and the pandemic.
At the beginning of June, Volkswagen halted operations at two Brazilian plants amid the chips shortage for 10 days. The company said, “A significant shortage of semiconductors is resulting in several supply bottlenecks.”
Then, in July, Hyundai Motor temporarily halted the operations of its Brazil plant due to the chips shortage. The closure was the first in the Piracicaba plant’s history, raising the alarm over chip shortages in the automotive sector.
What next for the Brazilian automotive sector?
Figures show that in the first half of 2021, the Brazilian automotive sector had a strong rebound on 2020. However, water has been thrown over the fire towards the middle of the year, due to chip shortages across the sector.
Local manufacturers expect to see some relief after August as manufacturing plants catch up, but manufacturers are uncertain about when the supply chain will normalise.
How’s morale among big companies? Sombre, to say the least.
Dell’s CEO echoes these sentiments, "The shortage will probably continue for a few years. Even if chip factories are built all over the world, it takes time."
So, whichever way we look, and whichever experts we ask, the global chip shortage is showing no signs of abating. For Brazil’s auto manufacturers, making supply meet demand will be the biggest test of the last few decades.
Need Electronic Components?
When you need to source hard to find electronic components quickly because of allocation, long lead times, obsolescence, or quality issues, contact Cyclops Electronics for a fast response to your enquiries and a reliable on time delivery. Email Sales@cyclops-electronics.com or call 01904 415 415 today.
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