But however brilliant the chips (more correctly semiconductors) are at orchestrating vehicle operations, they have too easily become another victim to a virus.
Their supply shortage, caused by a downturn in demand from the auto industry just a few months after COVID-19 gained worldwide attention, was expected to diminish after chip manufacturers refocused production back to supplying car-makers.
That was in October. Now, car-makers are warning that delays could continue well into next year.
In response, the European Union has agreed to reduce dependence on American and Asian producers.
Europe’s share of global chip production was 35 per cent in the 1990s but this has now fallen to nine per cent, mainly because it is up to 40 per cent cheaper to manufacture the chips in Asia.
Support packages have been introduced to bring semiconductor manufacture back to Europe, with Germany alone allocating €1 billion ($A1.6b) for investment and innovation in semiconductor production until 2023 as part of the Important Projects of Common European Interest (IPCEI) in the field of microelectronics.
European and German efforts already seem to be bearing fruit. In June, German company Bosch opened the first fully digitalised semiconductor factory in Dresden, dubbed ‘Silicon Saxony’.
Global chip leader TSMC of Taiwan announced at its annual general meeting in Taipei on July 26 that investments in a new semiconductor factory in Germany are currently being “seriously considered”.
Intel is also currently considering investments worth billions in the EU. Germany, France, Belgium and the Netherlands are among the hot contenders for the €20 billion ($A32b) production facility.
The French car-manufacturing union, the CCFA, said the global chip shortage and a new surge in COVID-19 infections were weighing on the prospects for a strong rebound in new-car sales.
It forecasts growth in the range of 9-10 per cent, but warned that could be revised down saying “we think it might be difficult to achieve 1.8 million sales this year”. Sales were 1.65 million in 2020 and 2.21 million in 2019.
One contradiction of the slow-down in new-car deliveries is that many car-makers have reported profit increases, partially attributed to the growth compared with the previous year’s poor result because of the pandemic, and also because of unprecedented customer demand that has depleted dealer stock.
Here’s some of the carnage:
Mercedes-Benz: Announced on July 27 that it will send thousands of employees on short-time work at several locations across Germany.
It said the global chip shortage would lead to lower sales in the second half of this year and well into 2022. Daimler AG CEO Ola Kallenius said it was “a fixable problem” but that it had “little visibility” about how it could be corrected.
Daimler has focused production this year on high-margin models in order to compensate for the forced lower production of vehicles. Global sales are up by 27 per cent and profit in the first quarter was €3.6 billion ($A5.8b), compared with a loss of €2 billion ($A3.2b) in the same period last year.
Mercedes dealers in Australia confirm that the German car-maker is deleting chip-dense items like touch screens and replacing them with analogue instruments and controls in order to maintain build rates.
Volkswagen Group: Expects the shortage issue to intensify in coming months. It recently reported record profits for the first half of 2021, but these were supported by high-margin Porsches and Audis which received the bulk of the chip allocation.
The Volkswagen brand reported about 100,000 vehicles could not be produced because of production bottlenecks caused by the chip shortage, equivalent to €2.5 billion ($A4b) in sales.
Porsche CFO Lutz Meschke said: “Because regardless of the uncertainties of the coronavirus pandemic, the continuing tense situation on the semiconductor market could become noticeable in the third quarter.”
Jaguar Land Rover: This week stated it has production stress because of the chip shortage. It expects semiconductor supply shortages in the July-September quarter to be greater than in the first quarter, potentially resulting in wholesale volumes about 50 per cent lower than planned. JLR currently has about 1.1 million global retail orders pending.
Renault: Has doubled its estimate for car production lost to the global chip shortage, saying the supply chain issue and rising raw material prices could curb further recovery in profitability this year.
It recently reported a first quarter 2021 profit of €368 million ($A590m) from a €7.4 billion ($A11.9b) loss a year ago.
Renault now expects chip shortages to cost the company about 200,000 vehicles this year, up from its previous forecast of a loss of 100,000 units.
Renault is now working to eliminate about 14,600 jobs worldwide and lower production capacity by almost a fifth in a bid to cut costs by more than €2 billion ($A3.2b). It has cut €1.8 billion ($A2.9b) of costs and said it now expects to reach a €2 billion goal by year-end, ahead of schedule.
Dealers report to GoAutoNews Premium that there are serious supply shortages in Australia with Kia and Isuzu Ute and anyone wanting any specific equipment or colour on just about any brand can expect to wait up to nine months.
MG, on the other hand, is said to have plenty of stock.
By Neil Dowling
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