Chips … and Supply Chain Dips

By Dean Parker

Since the start of 2020, the world has faced a significant shortage of microchips. The results of this shortage have been felt across the global automotive industry, with AutoForecast Solutions estimating that 11.1 million units of production were lost due to the shortage in 2021.

To put this in perspective here in the U.S., the industry was humming along with a 5-year pace of 17 million units per year before 2020, when sales plummeted nearly 20%. The automotive industry has been hit with such force, in part due to the sheer number of microchips required to build a car.

Demand and Supply

The surge in demand for computers, flatscreens, and other electronics brought on by the pandemic forced tech companies to scramble for microchips production to meet skyrocketing demand from consumers confined to their homes. During this time, many internet services reported that internet usage doubled, and services like Zoom saw a ten-fold increase in usage.

Conversely, car manufacturers canceled microchip orders due a seismic drop-off in demand for cars in the first quarter of 2020. For example, the industry sold over 4 million units in February of 2020. By April, it had experienced a free fall to around 1.8 million units. Manufacturers quickly revised their forecast, assuming demand would not recover near term and immediately cut production and cancelled orders for components including microchips.

Where We’re at Today

Industry sales remain below pre-pandemic levels. In fact, the industry has yet to match the volumes sold in February of 2019, due in large part to the ripple effect caused by forecasts made in 2019. Industries, like automotive, which didn’t race for chips at the onset of the lockdown, are being hit the hardest.

Reactions to this problem from automakers have been varied. Ford made headlines last year by parking unfinished Broncos in lots as they awaited microchips, and GM produced some of their cars without features like heated seats to reduce chip usage. Now, GM plans to close its Fort Wayne plant for two weeks in April as they wait for enough chips to resume production. Ford has also announced the closure of eight plants until more chips can be supplied.

While production issues like factory fires and trade disputes have complicated the situation, the number of chips being produced hasn’t been the main problem for car manufacturers –– microchip industry giants like Taiwan-based TSMC continue to post strong production numbers. The primary challenge auto manufacturers face continues to be the increased demand for smart appliances.

Despite the difficulty of the current situation, there are indications that shortage issues could begin to resolve soon. In a recent research report, J.P. Morgan estimated that the shortage would begin to ease during 2022, as chip makers begin to increase their investments in manufacturing facilities and the demand for lockdown related services decreases. Ford seems to agree with this forecast, stating that 2022 shipments should include 10-15% more Ford vehicles than 2021 shipments. Top sellers like the F-150 will likely take priority in these shipments until the shortage ends.

Still, production will continue to have delays and shortcomings until the problem is fully resolved. J.P. Morgan’s prediction for a 2022 end to the shortage is cause for hope, but the situation is fluid and subject to unexpected solutions and problems alike.

Potential Implications for Bronco?

Through March of this year, Ford has reported 23,573 sales of the Bronco. At this pace, Ford could eclipse 90,000 units this year, a significant increase over the 35,023 sold in 2021.

With an estimated 1,500-3,000 chips needed to produce well-equipped vehicles, manufacturers, including Ford, have their work cut out for them to meet demand for hot products like Bronco. Will Bronco maintain the encouraging pace enjoyed in the first quarter? For 2022, we expect to see continued pressure on features to reduce chip demand. For example, the elimination of the “halo” on higher-end Bronco headlamps would save chips without impacting the performance of vehicle and the feature could be added using an aftermarket solution.

Car and Driver recently published a comprehensive article outlining all of the chip-saving ideas currently being implemented in the U.S. For the time being, buyers anxious to get behind the wheel of a new Bronco may notice similar changes. Bronco Nation will continue to monitor the situation and provide the most up to date and comprehensive coverage of the all-new Bronco.