Chip shortage drags on as plant closures hit carmakers


Every day Laurent Valy hopes his phone will bleep, alerting him to a text message that says his colleagues can go back to work.

He heads a union representing 600 car workers at a Peugeot factory in Rennes, north-west France, closed because of semiconductor shortages that have slashed vehicle production and shut plants around the world.

“There are colleagues who are struggling with the situation psychologically and who are vulnerable,” said the CFDT union organiser at the Brittany plant, adding that workers lose a sixth of their pay while they are at home.

For Valy and other car workers, the news last Friday that Toyota, the world’s biggest carmaker, had cut annual production forecasts will have come as a further blow, signalling the chip crisis is far from over.

With a cascade of factory closures across Europe, North America and Asia, the shortages are likely to continue well into next year.

The pandemic and natural disasters in the US and Asia have left chip manufacturers struggling to get on top of an order backlog, with deliveries not helped by disruptions in global shipping and the supply chain.

Estimates of the likely hit to car production because of the shortages have shot up in recent days.

Data provider AutoForecast Solutions forecast 9.5m vehicles could be lost because of the crisis in its latest survey, nearly 1m higher than a prediction only a week earlier.

Bar chart of car units lost during crisis (m) showing carmakers could shed 9.5m cars due to chip crisis

The situation is most stark in Asia, where AFS calculates that 3.4m could be trimmed from production by the start of 2022.

An even bigger worry for carmakers is that the trend could become permanent as manufacturers, which make semiconductors for a range of vehicle components, drastically cut production of the chips that auto groups tend to use as they give priority to more lucrative tech and telecoms contracts.

Car groups have already been pushed to the back of the queue by the tech and telecoms companies, which need more advanced and expensive chips that make semiconductor companies more money.

Even Toyota, which has typically avoided the problems because of its ties with suppliers and its large inventories, has started to feel the pinch.

It was forced to cut its annual output target by 3 per cent on Friday because of factory shutdowns in Malaysia, which make chips for brake systems, and Vietnam, which manufactures semiconductors for wire harnesses used in cars. 

Teruaki Nakatsuka, chief executive of Nissan parts supplier Jatco, told the Financial Times the industry had been caught off guard by the extensive reach of chip parts that are scattered across an increasingly electrified automotive supply chain.

“There are components at every level even in places that you would least expect. I think there was not enough spotlight on the fragility of the supply chain, including the concentration of the semiconductor industry in Malaysia.”

There has been no reprieve for factory workers in the US, either. Ford and General Motors have cut shifts at multiple factories across the country for up to two weeks in August and September, including ones that make large, profitable pick-up trucks.

Line chart of % profit margins reported by biggest companies in sectors, 2005 to 2021 showing Auto suppliers bear the brunt of the chip crisis

This meant big falls in sales, with Ford reporting a 33 per cent drop in August compared with a year earlier.

However, so far the car groups have managed to weather the crisis relatively well as they raised prices and gave priority to the manufacture of higher-margin models to keep the profits rolling in.

In Europe, Stellantis, Ford, Volkswagen and Nissan all posted stronger than expected results over the summer and increased full-year forecasts. Profit margins have been about 10 per cent in the first half of the year, up nearly 5 per cent on normal times.

Some carmakers have even shaved costs to boost profits by shipping cars without all their advertised features.

Stellantis, which was formed from the merger of Peugeot owner PSA and Fiat Chrysler at the start of the year, has also reassured investors that it expects to see a clear improvement by winter.

Referring to the Rennes factory closure, it said the crisis was affecting the “whole automotive world” and that it had been adapting activity at its plants since the beginning of the pandemic.

Daimler, VW and BMW said they believed supply would begin to normalise in 2022.

But some warn carmakers may be about to hit a rockier period.

Philippe Houchois, an analyst at Jefferies, said they were reaching the “end of the goldilocks period” as they have little room left to manoeuvre on pricing, making them vulnerable to further cuts to car production.

Seiichi Nagatsuka, vice-chair of Japan Automobile Manufacturers Association, said uncertainty surrounding the bottlenecks in chip supplies would persist.

“It is difficult to foresee the impact of the Covid-19 resurgence beyond autumn,” he said. 

To Valy, sitting outside the closed plant in Rennes, carmakers have to accept some of the blame for not adequately anticipating structural changes in the market — but they are not the only ones who have been negligent. 

“Where has the state been?” he asked. “Just like with paracetamol [which is mainly produced in Asia], we should have realised earlier that our semiconductors are made in Asia and that poses a problem of sovereignty.”

Additional reporting by Claire Bushey and Dan Dombey


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