Sam Fiorani on When the Auto Chip Shortage Ends

As the first quarter of 2023 draws to a close, the car chip shortage remains one of the biggest stories in the auto industry. In early March, automotive trend analyst group AutoForecast Solutions announced that the projected number of vehicles cut from North American production runs had nearly tripled as a result of the shortage.

Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions, is one of the world’s leading experts on the automotive supply chain. Automoblog sat down with Fiorani to get his perspective on where things are with semiconductor supply, its impact on the auto industry, the factors contributing to it, and when the chip shortage might finally end.

a headshot of Sam Fiorani, vice president of global vehicle forecasting for AutoForecast Solutions
Sam Fiorani, Vice President of Global Vehicle Forecasting at AutoForecast Solutions

As we move into the second quarter of 2023, how would you describe the state of the automotive chip shortage?

“Going into the third year of chip shortages, things are looking up. The industry has seen continued improvements: from nearly 10.6 million units pulled from production plans in 2021 to an expected loss of 2.8 million this year.

With better supplies of chips for cars and trucks, global losses in 2024 could be as little as 1 million, or just over 1% of expected production. Diligence on the part of automakers and suppliers will move the industry forward.”

What are some of the more notable ways that shortages are affecting the auto industry?

“Lack of chips has been a significant limiting factor in the dramatic inventory shortages over the last three years in North America. Available chips have been incorporated into more cost-effective models, leading to a shortage of more affordable vehicles.

Many of the vehicles that arrived at dealerships were missing components such as cylinder deactivation systems, heated seats, heated steering wheels, and even navigation systems in some cases.”

What factors currently have the greatest impact on the semiconductor supply chain?

“When the pandemic shut down the economy, automakers were so sure the car and truck market wouldn’t recover quickly that they canceled orders for parts like semiconductors. This industry is not used to not being the focus of attention from its suppliers, but chipmakers don’t see auto production as a priority. Automotive grade chips are typically older designs for higher reliability.”

These older designs are less profitable than the chips used in smartphones and gaming systems. When vehicle manufacturers tried to activate the supply chain, there were not enough chips because the factories [factories that produce semiconductors] which make them focus on newer chips. New factories cost tens of billions of dollars and take years to set up, further delaying the supply of chips for use in vehicles.

Where have you seen improvements in the last three years in vehicle supply chains?

“Several vehicle manufacturers have entered into agreements with chipmakers to secure semiconductor supplies, while others simply waited for the situation to rectify itself. The US government, through the CHIPS Act, is pushing for more investment in semiconductor development and production locally rather than relying on imported chips from China and Taiwan. While these will take time, they are steps in the right direction.

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What needs to happen for the chip supply chain to reach a stagnation or even surplus point?

Setting up new factories to make chips takes time and a lot of money. The investment is going in the right direction, so now we are just waiting for capacity to be built. Some newer vehicles have moved to newer chips, which also helps increase supply, since those are the chips the industry would like to make.

A post-lockdown lag in demand for computers and game consoles has opened up some supply of these chips, but it’s the older chips that are in the greatest demand for automotive use, and that supply still lags demand. ”.

Should chipmakers worry about a rebounding surplus in the future?

“With the proliferation of web-enabled and computer-controlled devices, the long-term growth in demand for semiconductors is fairly well established. There is always a risk of oversupply, but this is unlikely for the rest of this decade as demand for automotive chips is expected to nearly double the industry’s share of the chip market.”

What impact would a fully recovered chip supply have on individual consumers?

“Buyers are getting acclimated to ordering vehicles or paying much more than the sticker [price] due to lack of inventory. When chip supply picks up, competition between manufacturers and distributors will likely return inventory levels to something more like 2019.

The industry promises it has learned from past mistakes, and we won’t see a 60-day supply of cars or a 100-day supply of trucks on dealer lots, but the current level of 30-day supply is unsustainable. Expect dealers to have a 45- to 60-day supply of vehicles when production returns to normal levels.”

What are automakers and dealerships doing, if anything, to prepare for future shortages like this? What should they be doing?

“As one of the largest in the global economy, the auto industry can be quite arrogant. Semiconductors are anomalies, as most components are supplied to vehicle manufacturers by companies that focus on the automotive industry. There aren’t many components like chips, where vehicle production has to compete with non-auto industries.

Securing more factories dedicated to vehicle chips will go a long way in stabilizing the supply of semiconductors. But ties to the chip industry must be maintained to keep cutting-edge technology developed for other industries.”

In your opinion, when do you expect chip supply to fully recover?

“Semiconductor problems should be less in 2024, but there will still be some residual problems, such as missing components and systems. If all goes to plan and additional capacity is established, vehicle production should have adequate access to chips by 2025.”

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