How the global semiconductor shortage is affecting vehicle deliveries

As demand for new vehicles begins to recover, a worldwide shortfall in the vital components needed to build them is likely to disrupt deliveries for most of 2021. Here’s what you need to know.

Semiconductors are the foundation of the memory and processor chips found in almost every electronic device, and the global market is increasing rapidly. According to the Semiconductor Industry Association (SIA), global sales reached $439bn in 2020 [1], which means it has more than doubled in value during the last 20 years [2].

The automotive industry relies on semiconductors, as an enabler of some of the biggest trends in new vehicles. Connected infotainment systems, sensors for safety and assistance functions, and power electronics for electric and hybrid drivetrains all require them. According to Deloitte, electronics will account for half of the cost of a new vehicle by 2030 [3]. Semiconductors alone are projected to reach $600 per vehicle by that point, compared to was $312 in 2013.

The onset of the Covid-19 pandemic caused a perfect storm for the automotive industry. At its peak, restrictions to control the virus halted production at 90% of vehicle and component factories in China, North America and Europe [4]. Alongside showroom closures, European registrations almost halved during the first six months of the year [5].

In turn, carmakers heavily reduced purchasing of semiconductors, just as demand surged for home computing, gaming and healthcare products. When semiconductor manufacturers restarted at reduced production, the limited volume available had already been prioritised elsewhere [6], leading to supply constraints as automotive markets picked up in the third quarter of the year [7]. Demand for semiconductor-reliant technology is increasing, but supply is struggling to keep up.

Exacerbating the issue, only five semiconductor manufacturers supply the automotive industry and two of them – NXP [8] and Infineon Technologies [9] – had to suspend production at their facilities in Texas during winter storms in February. There are no quick fixes, either – the SIA claims up to a 26-week lead time for semiconductor factories to deliver the orders to customers [10].

The automotive supply chain is tiered, and semiconductors are a component within a subsystem of the vehicle – such as a display, an infotainment system or a sensor. At best, a shortage could cause some trim levels or optional equipment to become unavailable. At worst it could stall production of an entire model line. It’s a particular challenge for an industry which tends not to hold much inventory.

AutoForecast Solutions is projecting semiconductor shortages will reduce vehicle production by 202,000 units during 2021, and a quarter of that lost volume will be in Europe [11]. European industry association ACEA expects supply constraints to remain until the third quarter of 2021, resulting in “considerably lower” production volumes and postponed deliveries for the rest of the year [12]. This is also happening as social distancing measures affect staffing at factories throughout the supply chain.

Manufacturer forecasts differ. Ford is expecting a 10-20% decrease in first-quarter production [13], while Volkswagen says it affects vehicles on the MQB platform [14] which is widely used across its model range. Nissan [15] and Honda [16] have paused production in the UK citing supply challenges, while Daimler [17] is cautiously projecting it can make up for lost volume in Q1 through the rest of the year.

A notable outlier, Toyota secured several months of semiconductor volume in advance, and is confident that production won’t be affected [18].

The semiconductor market remains fluid, affected by global demand and shifting trends in consumer electronics [19]. In the meantime, fleet professionals should consider the following:

• Plan ahead – look ahead at vehicle procurement this year and reassess normal timelines for doing so. Talk to your LeasePlan Account Manager about your 2021 replacement cycle to enable us to support your needs as the situation develops. We are being told by manufactures to get orders in earlier than normal.
• Consider alternatives – there may be challenges getting hold of some models, trim levels or equipment. Are there any other vehicles that fit your needs?
• Order early – some vehicle manufacturers are prioritising fleet customers, but assume that lead times will be longer than normal and order early to mitigate delays.

The semiconductor market remains fluid, affected by global demand and shifting trends in consumer electronics [19]. In the meantime, fleet professionals should consider the following:

• Plan ahead – look ahead at vehicle procurement this year and reassess normal timelines for doing so. Talk to your LeasePlan Account Manager about your 2021 replacement cycle to enable us to support your needs as the situation develops. We are being told by manufactures to get orders in earlier than normal.
• Consider alternatives – there may be challenges getting hold of some models, trim levels or equipment. Are there any other vehicles that fit your needs?
• Order early – some vehicle manufacturers are prioritising fleet customers, but assume that lead times will be longer than normal and order early to mitigate delays.

The semiconductor market remains fluid, affected by global demand and shifting trends in consumer electronics [19]. In the meantime, fleet professionals should consider the following:

• Plan ahead – look ahead at vehicle procurement this year and reassess normal timelines for doing so. Talk to your LeasePlan Account Manager about your 2021 replacement cycle to enable us to support your needs as the situation develops. We are being told by manufactures to get orders in earlier than normal.
• Consider alternatives – there may be challenges getting hold of some models, trim levels or equipment. Are there any other vehicles that fit your needs?
• Order early – some vehicle manufacturers are prioritising fleet customers, but assume that lead times will be longer than normal and order early to mitigate delays.