Chip crisis worsened by Delta variant threatens to cut auto output by 7.1 million cars

Toyota Motor plans to briefly pause output at 14 plants next month and slash production for September by 40 per cent. PHOTO: AFP

SOUTHFIELD, MICHIGAN (BLOOMBERG, REUTERS) - The global shortage of semiconductors will cut worldwide auto production by as many as 7.1 million vehicles this year, and pandemic-related supply disruptions will hobble the industry well into next year, IHS Markit said.

The lack of chips will not stabilise until the second quarter of next year, with recovery coming in the second half, IHS said in a report on Thursday (Aug 19).

The grim outlook is further proof that the chip crisis is far from over. And the research firm's forecast does not include the latest cuts from Toyota Motor, which plans to briefly pause output at 14 plants next month and slash production for September by 40 per cent.

"The situation is still fraught with challenges," IHS analysts Mark Fulthorpe and Phil Amsrud wrote in their report. "We are also seeing additional volatility due to Covid-19 lockdown measures in Malaysia where many back-end chip packaging and testing operations are performed."

Low vaccination rates and rising infection rates in South-east Asia are prompting shutdowns of plants assembling all types of semiconductors, IHS said.

It now sees the chip crisis reducing global auto production by 6.3 million to 7.1 million vehicles this year, not including the Toyota cuts. In the third quarter alone, as many as 2.1 million units could be lost to the chip shortage, IHS said.

The second quarter of 2022 "may be the point at which we look for the stabilisation of supply", IHS said, "with recovery efforts now starting only from the second half of 2022".

In grim warnings this week, major carmakers including Toyota and Volkswagen offered fresh evidence that the auto industry remains firmly in the grip of an ongoing semiconductor chip shortage that shows no sign of abating.

After being forced to close plants last year as the pandemic took hold, carmakers are now facing stiff competition from the sprawling consumer electronics industry for chip deliveries amid global supply chain disruption.

The latest snarl-up comes as Covid-19 cases surge in Asian countries home to auto factories and chip plants such as Japan, the Philippines, Thailand, Vietnam and Malaysia, leading to stricter curbs to prevent the spread of the virus.

Toyota, which had stockpiled chips and previously had experienced less disruption, cited the Asian outbreak of the Delta variant of the virus for its September production cuts.

"Especially in South-east Asia, the spread of Covid and lockdowns are impacting our local suppliers," Toyota purchasing group chief officer Kazunari Kumakura said.

Automobiles have become increasingly dependent on chips for everything from computer management of engines for better fuel economy to driver-assistance features such as emergency braking.

Germany's Volkswagen also said on Thursday that it could not rule out further changes to production.

"We currently expect supply of chips in the third quarter to be very volatile and tight," the No. 2 volume carmaker behind Toyota told Reuters.

World No. 4 Stellantis joined the chorus, saying it would halt production at a plant in western France next week and cut output at another factory in the eastern part of the country.

Ford Motor had already said earlier this week that it will temporarily halt building its best-selling, profit-driving F-150 pickup truck at its Kansas City assembly plant, while China's Geely Automobile Holdings warned the recent worsening of the chip shortage and resurgence of Covid-19 cases could pose a "significant threat" to its sales performance over the next few months.

Although Volkswagen said it expected the situation to improve by the end of the year, some carmakers have warned the chip crisis will drag on into 2022 with earlier industry hopes of a quick resolution long since dashed.

As numerous American auto production lines stand idle, at least part of the time, a trio of Democratic senators asked the Taiwanese government for more help to address the chip shortage, according to a letter reviewed by Reuters.

But even when one kink in the supply chain gets straightened out, others appear, making it difficult to ensure a consistent flow of chips and leaving damage-limitation focused automakers pushing available components to their more profitable models.

"The situation does remain fluid," General Motors chief executive Mary Barra said on a conference call on Aug 4, noting the impact of events such as the current Covid-19 spike in Malaysia.

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