Toyota’s Car Chip Shortage: What It Means For Automakers
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It’s hard to escape the news that many automakers are impacted by supply issues for semiconductors, essential components in modern vehicles. The car chip shortage for Toyota, General Motors, Ford, and other companies has had lasting effects on the car business. Limited chip supplies mean:
- Reduced or stopped production for specific makes and models
- Selling vehicles without certain features (like heated seats)
- Building incomplete vehicles that can’t be sold until crucial chips become available
- Higher new car prices due to limited availability
- Higher used car prices because new car shoppers can’t find what they want
What Are Microchips (Semiconductors)?
Before diving into more specifics about the car chip shortage for Toyota (and others), let’s look at microchip (semiconductor) basics. Each chip, composed chiefly of silicon, is engineered to perform a specific task, such as a memory storehouse paired with a computer processor (another type of semiconductor). A commodity integrated circuit or standard chip is designed for a singular purpose, the opposite of a complex system on a chip (complex SOC). A complex SOC can perform multiple actions, such as computer data processing and graphics processing.
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How do Microchips Work in Cars?
While it’s easy to think of a car as one integrated unit, the modern vehicle is really multiple systems engineered to work together. And each of these systems requires numerous microchips to operate. According to the New York Times, contemporary cars use 3,000 or more chips of varying complexity.
- Powertrain: The days of carburetors and distributor caps have long since passed. And today’s carmakers focus on maximizing fuel economy and minimizing vehicle emissions in compliance with regulations. It’s also possible through semiconductors and sensors that monitor speed, temperature, fuel quality, driver input, and dozens of other factors. This same technology commands the engine and transmission to respond in certain ways.
- Safety: Modern safety devices like anti-lock brakes and automatic emergency braking wouldn’t exist without semiconductors. It comes down to the fact that computers can respond to emergency situations much faster than humans.
- Infotainment: The touchscreen infotainment system in most new cars is really a computer or tablet designed to handle various vehicle functions. It has to accept operator commands, perform the requested tasks, and present the associated information on the display. All of these actions require the help of microchips.
- Accessories: Besides basic vehicle operations (driving), a lot is happening inside a car. From power windows and locks to heated seats, almost every driver or passenger activity with the vehicle involves electronics.
What Caused The Car Chip Shortage for Toyota and other Manufacturers?
The tale of today’s semiconductor woes is complex, so we’ll do our best to keep it short. Head back to the early days of the COVID-19 pandemic during the first months of 2020. One of the first reactions by governments and companies to slow the spread of the virus was to shut down workplaces.
Given the situation started in China, closings began in Asia, especially among people-heavy factories. According to Newsweek, 75% of the world’s semiconductor manufacturing comes from China and East Asia. See where this is heading?
But that’s only part of the equation. Next up are business closings in North America, including auto plants. In addition, most U.S. consumers are stuck at home with little interest in buying cars. So, the automakers dial back their need for car chips, which must be ordered months in advance.
As semiconductor factories returned to operations, they were awash in demand for chips used in consumer products like cell phones, TVs, computers, and gaming consoles. Now home-bound, people needed to stay connected for work or wanted more entertainment devices.
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However, as car factories opened back up, these automakers discovered their chip orders were at the back of the line. Semiconductor companies were too busy making essential components for iPhones and PlayStations.
Making things worse, chipmakers faced raw materials shortages associated with the pandemic. In addition, a March 2021 fire at a major Japanese semiconductor factory caused further disruption.
How Is the Lack of Chips Affecting the Auto Industry?
The car chip shortage for Toyota and other automakers has translated into reduced vehicle production and greater scarcity on dealers’ lots. It’s better now than it was in 2021 or earlier this year. Manufacturers have taken a three-prong approach to deal with the microchip crisis.
- Shutting down assembly lines: The early days of the shortage saw the complete production stoppage of specific models. On several occasions, for instance, Ford had to close the factory for its bread-and-butter vehicle, the F-150 pickup.
- Store partially assembled vehicles: Another strategy involved building certain vehicles without essential chips and parking the affected units until parts could be installed.
- Removing certain features: Some manufacturers responded to the situation by eliminating or disabling specific equipment. For example, General Motors axed heated seats and steering wheels on some models. In another instance, BMW deactivated the touchscreen portion of its entertainment system (input was handled through voice command and knob control).
Above all else, many manufacturers have suffered from a drop in sales. In the U.S. alone, Toyota reported that sales plunged 19.1% for the first half of 2022. Honda’s U.S. sales nosedived by 47% in the second quarter of this year. Asian manufacturers appear to have suffered the brunt of the shortage, but these issues have also affected domestic automakers.
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Will the Chip Shortage End?
Crystal balls are seldom accurate for predicting the future, and informed minds often have conflicting opinions. Citing a slowing demand for consumer electronics, J.P. Morgan forecasts that chip supplies will become more plentiful in the second half of 2024. This outlook contrasts with Volkswagen, which believes normalcy in the industry won’t return until 2024.
But there are successes along the way. In July, Volvo’s CEO reported that the automaker is back to normal regarding the chip situation. In short, it’s a safe bet that individual brands will overcome these supply-chain difficulties, but only time will tell when the chip shortage crisis is truly over.
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