Chip shortages hit even as auto chip sales climb


When COVID-19 caused carmakers to shut down plants around the globe last spring, few envisioned the fourth quarter 2020 jump in sales of cars and auto-related semiconductors.

Lately, some North American carmakers are even reporting a chip shortage that has been seen elsewhere around the globe, cutting into their production.  Ford Motor Co. is planning to idle a Louisville, Kentucky, SUV assembly facility for a week because of limited supplies of chips used in displays and transmissions, forcing a temporary layoff of 3,900 workers, according to recent reports, including one from Reuters. Fiat Chrysler is also idling its Brampton facility in Ontario, Canada.

Chip shortages for carmakers have been blamed on increased use of chips for personal electronics, with the pandemic forcing workers and students to stay home. It’s likely that sales increased for autos in the fourth quarter even during a period of chip shortages for some carmakers because of the turnaround time to order and then receive the needed chips.

Even with the auto chip shortage, tech companies have expressed renewed fascination with electric vehicles and self-driving cars, more than in the past two years. In one example, reports have surfaced Apple wants to make a self-driving electric car by 2024—which sounds iffy to some analysts but has prompted reports that Apple’s car assembly partner could be Hyundai or Foxconn-Byton.

RELATED: Apple’s carmaker partner could be Foxconn-Byton, analyst suggests

Interest in building new cars and revving up R&D into autonomous vehicles has registered in healthy growth in sales of integrated circuits (ICs) used in new automobiles.  On Friday, VLSI Research reported that fourth quarter global auto chip sales improved by 30% over the third quarter, reaching $6.2 billion.  That was 11% above fourth quarter 2019.

Dozens of chips are used in each modern car, and their numbers increase with higher levels of artificial intelligence (AI) used to prevent cars from drifting into other lanes or rear-ending cars ahead. Many high-end models now include Advanced Driver Assistance Systems (ADAS) even as higher-level self-driving technology is still years away.  Tesla already has smart windshield wipers that known how hard it is raining, powered by advanced chips. 

“Auto ICs are used everywhere. There’s more compute power in the door of a new car than it took to go to the moon and back,” said Dan Hutcheson, industry analyst at VLSI, in an interview.

Overall auto IC sales for 2020 were down about 6.4% from 2019, but that decline is modest when considering that second quarter sales were down 26% over the same quarter a year earlier.  The fourth quarter improvement was the first time that auto IC sales were above 2019 levels.

 “The rapid turnaround was driven by the demographic shift from urban cities to the suburbs where car ownership is essential,” Hutcheson said.

Hutcheson has tracked what is going on 12 months into Covid, with home prices rising in the suburbs of big U.S. cities to rising interest in buying used cars, even as used car prices have jumped. 

“It’s a no brainer as to what’s happening,” Hutcheson said in an interview.  “As Covid forced people to work from home, they went crazy working in apartments in big cities and had a lack of control over who was wearing masks or not. If you have children in that situation, it can be pretty scary. People moved out quickly.”

Living in the suburbs has long required car ownership to get around.  With the demand for more cars, “there has been a significant recovery in sales of all the components going into new cars,” he added.

“It’s not like we’re hitting massively new growth, but we are returning to where we should have been after the huge collapse in March,” he added. “At that point, no one needed a new car and the auto market was expected to be down two or three years. Suddenly people went from thinking ‘I’m not using a car’ to a new dynamic of ‘I don’t have a car and have to have a car.’ Used car prices have been up for months now.”  December used car prices on average were 9.3% higher than in December 2019, he said.

People moving to the suburbs in large numbers can work from home and can afford to buy a home, “so they want higher end cars with all the electronics because they are computer literate and that kind of cars fits their lifestyle,” Hutcheson added. The buying trend started in July after carmakers cranked up their assembly lines.  

Tesla may be the best example of what happened in 2020, reaching sales of 499,000 new cars in all of 2020, an increase of 36%. That was about 104,000 in the fourth quarter after reaching 145,000 in the first quarter and then dropping to 82,000 in the second quarter.  Tesla’s fourth quarter “was a sign of hope,” Hutcheson added.

Hutcheson even believes the interest in car buying will invigorate R&D for futuristic self-driving vehicles and development of car-related chips to support them. That compares to a feeling by chipmakers surveyed in the spring of 2020 who said the self-driving initiative and R&D was going to be put on pause for years to come.

Big picture: 2020 sucked for auto sales, hitting their lowest point in nearly a decade, but demand is recovering which is mirrored in the auto IC sales, which precede auto sales by many months.  The Wall Street Journal summarized analyst predictions that U.S. vehicle sales will reach up to 14.6 million in 2020 once results are tallied, down about 15% from a year earlier and the lowest level since 2012. The U.S. experienced a previous five-year stretch of U.S. sales topping 17 million annually.

Last week, General Motors reported fourth quarter sales up 4.8%, while Toyota said sales increased in December from the year before and Fiat Chrysler Automobiles NV said the pace of sales in the fourth quarter was up from a year earlier.   J.D. Power said the average price for a new vehicle in December was $38,000 up from $34,000 in earlier 2020.

Hutcheson’s insights about car buyers moving from cities to the suburbs are mirrored by other analysts who see new car buying mainly by high-income Americans.

In Europe, automakers are making plans to shift dealers to the suburbs as the pandemic has fueled an exit from cities, Automotive News Europe reported in December.

Deloitte analysts have also conducted global research that shows “persistent concern around the use of shared transportation with a quite obvious need for social distancing around the pandemic,” said Ryan Robinson, automotive research leader for Deloitte. “Covid has really done a number on mass transit ridership,” he said in interview.

While there is anecdotal evidence of significant numbers of people moving to the suburbs, Deloitte has also found in surveys that commuters are still concerned about road congestion and want greater access to mass transit.  “Even people that are driving cars find a significant role for mass transit,” Robinson said. “It’s not like we can forget about mass transit and have to get back balance to move people around.”