Modern vehicles are more reliant on semiconductors than ever before. Most vehicles come fitted with a number of chips to handle onboard functions, power infotainment systems, and monitor and perform driving functions, including advanced driver assistance systems (ADAS) and semi-autonomous operations.
Yet, a semiconductor chip crisis marred the global economy in 2020, causing price hikes and major supply chain disruptions across the automotive industry. The shortage cost the global auto industry roughly US$210bn in lost revenue in 2021, according to market research firm AlixPartners. AutoForecast Solutions estimated that the world lost 11.3 million units of chip production in 2021, creating a major impact on vehicle production. More recently, Russia’s 2022 invasion of Ukraine has introduced further uncertainties to the semiconductor supply chain and automotive production. McKinsey reports that Ukraine supplied 25 to 35% of the world’s purified neon gas, and Russia supplied 25 to 30% palladium, a rare metal used for semiconductors.
Chips as a commodity
Nevertheless, as demand for new vehicles featuring the latest technology increases, it’s forecasted that the global semiconductor industry will increase manufacturing capacity by 56% in the next decade, according to the Semiconductor Industry Association (SIA). At the moment, 75% of the world’s chip manufacturing occurs in East Asia. Much of this production has been supported by government subsidies to keep production costs low.
Now, the US is preparing to rival East Asia with a greater share of semiconductor production through its own government subsidy; the CHIPS and Science Act passed on 9 August 2022. “The CHIPS Act is one of the few in recent history to get true bipartisan support, which says a lot,” says Aron Solomon, Head of Strategy and Chief Legal Analyst at legal marketing agency Esquire Digital. “Essentially, we’re trying to validate semiconductor chips becoming like oil—a commodity that we desperately need and currently have to rely on others to supply.”
We can’t be held hostage politically by any nation that can control our chip supply
