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Semiconductor Shortages Causing Automakers to Cut Production for early 2021

Semiconductor manufacturing has faced numerous challenges keeping up with demand over the past year, including government shutdowns and allocation shifts. Now, shortages are wreaking havoc on many industries – especially the already stunted automotive industry, and they’re preventing its recovery.

In early 2020, government shutdowns and restrictions caused by the COVID-19 pandemic halted production for almost half of the year. When production did resume, manufacturers shifted builds to meet heightened demand for PCs and Chromebooks caused by work from home and virtual schooling becoming part of a “new normal”.

In the second half of the year, manufacturers began to see shortages in raw materials necessary for semiconductor production, like 8-inch wafers and ABF substrates, causing production and global supply to continue to narrow.

During this time, demand for automotive started to rise due to restrictions being lifted, purchasing behavior shifting to EV and consumers wanting to avoid public transportation. The industry recovery has been hindered; however, by shortages due to EVs requiring twice as many semiconductors compared to internal combustion engine automobiles.

With over 40% of the cost of a new car attributing to semiconductor-based chips and the demand of semiconductors in other manufacturing sectors, the global market is expected to be worth $129 billion in 2025 – triple the size it was in 2019. However, the growth could continue to be hindered if supply doesn’t increase.

In response, automakers like Volkswagen, Ford and Toyota are cutting production at a time when the industry is on the precipice of a boom as consumer demand increases for vehicle comfort, customization and electric vehicles.

Manufacturers in the automotive chip market that could be affected include Texas Instruments, Toshiba, Infineon Technologies, NXP Semiconductor, ST Microelectronics, and more.

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