Planning on buying a new motor? Chip shortages set to hit UK carmakers this year and next

The global chip shortage is likely to have an impact throughout this year and into 2023, affecting some sectors worse than others, with UK car sales likely to be one of those hit.

According to the Society of Motor Manufacturers and Traders (SMMT), the UK car market continued to be plagued by the impact of the COVID-19 pandemic during 2021.

New car registrations were up just 1 per cent over 2020, although battery electric vehicles (BEVs) represented 11.6 per cent of all sales, an increase of 76 percent on the previous year.

While many employees working from home is likely to be reducing demand for new vehicles, a shortage of the chips used in modern automobiles is also playing a major part, according to the SMMT.

Mike Hawes, SMMT chief executive, said that car manufacturers are facing numerous challenges, including tougher trading arrangements and accelerating technology shifts, but it is the global semiconductor shortage above all else which is impacting on the vehicle supply chain.

"We think demand is still there and demand is still strong," Hawes told Reuters, adding that it was expected in the industry that the chip shortage would undermine vehicle sales during course of 2022 and this would "flow through to 2023".

One of the reasons why car manufacturers have been so badly hit is that they reduced their orders for chips in response to falling demand for new vehicles. This coincided with a surge in demand for new computers as people began working remotely and so the semiconductor producers gave priority to servicing that market instead, as The Register previously reported.

However, the situation appears to be changing, and manufacturers in the autonomous vehicle sector are trying not to be caught out in the same way. Some are moving quickly to secure long-term supplies of the components needed for sensors and the AI-powered systems that are required to help a vehicle navigate a route to its destination while avoiding obstacles.

In fact, the tables might be turned as the automotive sector is now trying to build up its inventory levels so they have headroom to cover any future dips in supply of the components they need.

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This may lead to a shortage of computer chips as semiconductor vendors use their capacity to meet this demand, according to Manoj Sukumaran, principal analyst for data centre, compute, and networking at Omdia.

The automotive sector has traditionally operated on a just-in-time (JIT) supply model with very low levels of inventory, Sukumaran said, but some companies are now aiming to hold as much as six months' worth of stock.

"Customers across market segments are increasing or planning to increase their inventory levels for critical semiconductor components, and this could lead to an uneven supply situation. For example, the automotive vendors are planning to increase their inventory levels to four to six months to avoid any supply disruptions," he said.

While the type of components used for automotive are different from those in consumer or other market segments, chipmakers prioritising the manufacturing of automotive components could create supply constraint in other segments, especially with components like power management ICs (PMICs), he added.

PMIC shortage adversely affected the data centre server, storage, and networking equipment vendors in the second half of 2021, but some new fabrication capacity has already come online to address this, and overall Sukumaran thinks the semiconductor shortage situation will improve towards the second half of 2022.

But he warned that demand for semiconductor components remains very strong across consumer electronics, datacentre, automotive and industrial market segments, with little spare capacity for any increase in demand.

Meanwhile, there is also concern over the possible impact on the industry from a fire at ASML, which is a major supplier of the lithography equipment used in the manufacture of semiconductors. All in all, 2022 looks set to be an uncertain time for the chip market. ®