Why is there a semi-conductor chip crisis and how is it affecting the UK Automotive Industry?

At the beginning of the Pandemic, all manufacturing and production in the UK, and to a large extent globally, shut down. All be it for a short period of time, once production had started to find a covid safe way to work and gradually began to open up, demand for products like cars dropped significantly as the Government told us to stay at home.

A drop in demand and a slowing down of production meant that orders throughout car manufacturer’s supply chains slowed and a kink in the chain during any part of this process can have a ripple effect. And here is what has led us to the big issue facing car manufacturers around the world, the semi-conductor chip shortage.

Covid took online activity to new levels

When Covid struck, the world went online on a scale never experienced before. We shopped online, we worked online, and we lived out our social lives online. Children were educated online, and every public service started communicating online. The ripple effect of this was a huge surge in demand for consumer electronic equipment; laptops, tablets, phones, and gaming equipment, all of which need these precious semiconductor chips.

As car manufacturers were cancelling orders for these chips, electronic equipment manufacturers were increasing theirs, and supplies destined for the automotive industry ended up in phones, tablets, and computers around the globe.

So here we are today, and there is no avoiding how the semi-conductor chip issue has affected and will continue to affect automotive manufacturing globally.

What is being done to resolve the issue?

The first thing that stands out is that Europe accounts for less than 10% of global chip production. The UK’s largest chip producer has been acquired by Nexperia, a Chinese-owned company. The world’s biggest producer by volume is TSMC in Taiwan and 80% of semiconductor chip manufacturing takes place in Asia.

The US Senate has passed the Innovation and Competition Act, a $250bn bill designed to boost US semiconductor production. The European Commission set out an ambitious plan to grow its share of the global semiconductor market to 20% by 2030 and committed $160bn of its Covid recovery fund to tech projects and China is positioned to become the largest producer by 2030. As for the UK, well we have sold our largest semiconductor chip manufacturer to a foreign investor. But, the UK is very much at the forefront of research and development that will allow us to play a leading role in the semiconductor industry in the coming years.

What does the future look like for UK automotive manufacturing?

There is no short-term solution to the global chip crisis. The UK government needs to direct investment towards semiconductor businesses and their overall supply chain if we are to strengthen our position in the future.

Meanwhile, the ongoing chip shortage has resulted in a dramatic fall in car production of 41.4% year-on-year in October 2021, with just 64,729 vehicles rolling off production lines, making for the worst October for the industry since 1956. The knock-on effect of these shortages is that car prices are rising and the second-hand car market is surging with the AA suggesting that the price of the UK’s most popular cars have increased up to 57% since 2019.

As we look ahead to 2022, there are predictions that UK car manufacturing could see the shoots of recovery from their Covid woes by Q3 in 2022. The UK automotive sector is one of the largest industries in the country, with a £60.2 billion turnover and employing more than 790,000 people. But right now the sector needs support from the Government to thrive again with measures to raise competitiveness with global rivals, in tackling high energy costs, supporting employment and training and helping businesses whose cash flow is under pressure from these historically poor production numbers.