European car manufacturers are incorrigible. Vehicle production could come to a halt again due to the chip shortage
The billions of euros lost by European car manufacturers due to chip supply disruptions during the coronavirus breakdown of supply chains did not lead the companies to significantly adjust their operations. This could backfire on them again in the future.
Semiconductor components – chips can undoubtedly be described as a technology that we use daily and which almost drives our lives. A technology without which it would not be possible to drive a modern car, use a mobile phone continuously connected to the internet, and enjoy many other modern conveniences. However, it is also a component that has caused much concern, not only for car manufacturers who require hundreds of pieces for each vehicle.
During the coronavirus crisis in recent years, there was a widespread collapse of supply chains globally, and chips quickly became a missing component, without which it was not possible to produce a single modern vehicle. In the case of car manufacturers, production was very soon halted, costing the entire automotive industry billions of euros.
It might seem that car manufacturers learned from the past years, and indeed it appeared that way for a moment. According to experts, the situation is currently stable, but unrelenting European car manufacturers are still not prepared for another potential chip supply interruption.
Most major car manufacturers are therefore continuously trying (like companies in other sectors) to find ways to reduce production costs, aiming for higher profits. In the case of car manufacturers, this involves building vehicle platforms where, for example, multiple models share the same technologies, achieving a reduction in the diversity of the entire platform and reducing costs with larger-scale production.
Car manufacturers also face the same pressure for lower chip prices. They do not purchase them in advance or stockpile, but order them so they are not on shelves for an extended period. The principle, used in the form of the FIFO (First In, First Out) method, ensures that older stocked products are sold first, a strategy used by major e-shops and other companies, which may not pay off for car manufacturers.
Smaller inventory, which is constantly replenished, can be a significant saving but also a substantial problem when there are the aforementioned supply issues, which were most evident during the pandemic. Although this form of purchase is currently advantageous for car manufacturers, as the capacities of semiconductor manufacturers are far from exhausted, it could again bring about another crisis.
Chip manufacturing is not an easy process, and starting production of these components is not measured in hours or days but rather in many months. Should difficulties arise, whether political in nature or in the form of natural disasters, there could again be a halt in the production of new vehicles for European car manufacturers.
Consequently, at present, they are addressing challenges from Chinese competition in the field of electromobility, and they cannot afford further issues. The problems that would be brought on by a chip shortage could be the proverbial last nail in the coffin of their survival for many car manufacturers in the EU.
