Since the invention of the transistor, the complex universe of electronics has exploded in terms of research and development, innovation, efficiency, effectiveness, and complexity. Throughout the past half century, semiconductors became a critical component in the manufacturing of smartphones, computers, cars, and machinery. They are also expected to play an even bigger role as we head towards the Internet of Things.
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Electronic devices are all about handling information, and semiconductors are like the nervous system, orchestrating the complex flow of electric signals telling everything what to do and saving what they have done in a memory file. That is why semiconductors are considered to be the backbone of all electronic systems.
Since the COVID-19 pandemic and the disruption of global supply chains and manufacturing began to take their toll, the manufacturing sectors began to notice a shortage in semiconductors. A year later, the shortage began to effect global production. One of the most sensitive yet under-the-radar products suffered extreme shortages, which impacted every single manufactured product in the world.
A typical car could have between 200 and 2,000 semiconductors, depending on the amount and complexity of its electronic systems. The shortage of semiconductors was so significant that companies like Toyota — the world’s largest producer of cars — reduced its production in Japan alone by 40 percent. The same can be said for other conglomerates like Nissan, Ford, Volkswagen, and others.
Stocks for companies like AMD and NVIDIA, both chip manufacturers, soared, and the financial markets speculated in the trillions of dollars to make a buck from the shortage being a fundamental factor affecting all producers.
The most expected outcomes for such shortages would be a reduction in the number of cars produced annually, an increase in the price of cars, delays in the delivery of cars by manufactures, and so on.
The production of semiconductors requires huge investments, infrastructure, and can only be profitable if mass produced. In other words, making semiconductors is complicated and has many barriers to entry.
Countries like the US now consider investing into semiconductors as infrastructure spending, and are pushing lots of money into their production, but this will not yield immediate results. The semiconductor shortage is projected to last for at least five more years.
This solidifies the case of a guaranteed shortage and an increase in the price of cars available on the lot, however car manufacturers do have a trick up their sleeves.
Over the past decade alone, the list of specs available in the standard package of any car has substantially grown as things like automatic windows became an absolute standard in even the most basic cars. Fleet cars, or vehicles made for company use, now have radio, air-conditioning and other specs that were once optional and are now standard.
In order to avoid the inevitable outcomes of the semiconductor shortages, I think manufacturers will strategically use their semiconductor inventories. One way they may do this is by reducing the number of electronic devices in many of their models, thereby hopefully maintaining production levels without running out.
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