Jaguar Land Rover and auto rivals warn chip shortage is hitting production
Carmakers Jaguar Land Rover (JLR), Hyundai and Volvo have all warned that production will be affected in coming months by a global shortage of computer chips. JLR said it is pressing pause on production at two UK plants because of a shortage of microchips, which is stemming from a worldwide shortage of semiconductors that has been dragging on the car industry since late last year. The UK’s largest automotive producer told reporters on Thursday that production will be curtailed at its factories at Castle Bromwich in the West Midlands and Halewood on Merseyside for the whole of next week and possibly longer.
Meanwhile in Sweden, Volvo released improved first-quarter profits but confirmed that delays in truck production will occur during the second quarter due to the semiconductor shortage. Chief Executive Martin Lundstedt said the supply chains remained unstable. “We can therefore not rule out further disruptions in both the truck business and other parts of the group,” he said.
The pandemic has had an effect on the supply of computer chips, and this has been exacerbated recently by a fire a factory in Japan and storms in Texas. Elsewhere in the automotive industry, Hyundai Motor (OTCMKTS:HYMTF) and Renault SA also both warned that disruption in the supply of chips is likely to hit future production. While reporting a near tripling in first-quarter profit compared to last year, the South Korean carmaker said its assembly lines were halted three times due to supply-related issues in the past month.
But while Hyundai was not as badly affected as some rivals, as it had built up a healthy inventory of chips and prioritised them for its most popular models, the global shortage is catching up with the company. The problem of semiconductor parts is “a little more prolonged than we expected,” said executive vice president Seo Gang-hyun, adding that the situation “is rapidly changing [and] it’s difficult to predict production status after May”. Analysts calculate the chip hiccups so far this year have led to around Hyundai producing 12,000 fewer vehicles.
Renault, which also announced results on Thursday, reckons the chip troubles for the industry are currently at their peak, but warned disruption could continue for months over the summer. Last week it was reported that several of the French group’s car factories will be partly idled for another six months because of the silicon shortage. Analysts and industry figures say that car companies have been hit harder than other industries that rely on chips.
“The automotive industry doesn’t count for much in the semiconductors industry,” complained a source at one car manufacturer to the Guardian.
Because of carmakers’ “just-in-time” model of manufacturing, the pandemic saw the industry rush to cancel orders in the first quarter last year. Then the likes of Apple, Samsung and the rest of the electronics industry, which have enjoyed an acceleration in demand and not escaped supply tribulations either, bagged most of the extra chips and even when the car makers’ chip suppliers offered to ramp supply back up for an anticipated rebound in demand in 2021, the automotive industry demurred and so ended up at the back of the queue. In a way it was a good day for chip maker Alphawave IP Group PLC to announce plans for a GBP3.2bn London IPO.
The British-Canadian company, however, is not likely to help the auto industry, as its chips are mainly to help drive data through phone networks and data centres. Nevertheless, it is an interesting time for the chip sector many reasons, said analysts at AJ Bell, with global chip sales rising 5% to a new high of US£430bn in 2020 despite the pandemic and with further growth and increased silicon content per unit in key end markets like autos, mobile devices and data servers expected to fuel global sales growth of around 8% in 2021. “Silicon chips – or semiconductors – are everywhere we look, from our mobile devices, to our computers, cars, washing machines and fridges and new developments within the industry, as chips get physically smaller even as they offer more processing power, will play a vital role in the advancement of 5G mobile technology, artificial intelligence, electric and autonomous vehicles, the Internet of Things (IoT), data networking and cloud storage,” the analysts said.
“This could all hope to stoke interest in the Alphawave IP flotation, especially as the UK market still lacks the exposure to fast-growing industries that many investors crave.”
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