Industry leaders urge Biden to take action as a critical shortage of computer chips could cost automakers billions

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Grace Kay
·5 min read
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Joe Biden
President Joe Biden delivers remarks in the State Dining Room at the White House on February 5, 2021. Stefani Reynolds-Pool/Getty Images
  • A shortage of semiconductor chips could cost car companies as much as $61 billion this year.

  • Production has already been delayed at some Toyota, Nissan, Volkswagen and Ford plants.

  • A group of executives at US chip companies urged Biden to prioritize funding for semiconductor manufacturing and research.

  • Visit the Business section of Insider for more stories.

A board of executives from leading US computer chip companies pushed for President Joe Biden to take action against dwindling semiconductor supplies on Thursday.

The shortage of semiconductor chips, driven by disruptions in the supply chain due to COVID-19, could cause car companies to lose as much as $61 billion in revenue this year, Bloomberg reported in January, citing estimates from the consulting firm Alix Partners.

In the letter from the Semiconductor Industry Association (SIA) Board of Directors, the industry leaders urged Biden to include funding for computer chip-manufacturing and research in his economic recovery and infrastructure plan.

"By investing boldly in domestic semiconductor manufacturing incentives and research initiatives, President Biden and Congress can reinvigorate the U.S. economy and job creation, strengthen national security and semiconductor supply chains, and ensure the U.S. remains the leader in the game-changing technologies of today and tomorrow," John Neuffer, SIA president said in a statement.

Last week, several senators also called for the White House to combat the global chip shortage.

"We believe that the incoming administration can continue to play a helpful role in alleviating the worst impacts of the shortage on American workers," the senators wrote.

The bipartisan group of 15 senators are from several states that could see a significant impact from declining production at car manufacturing plants, including Michigan, Ohio, Wisconsin, Illinois, Indiana, and South Carolina.

Several automakers are already feeling the pinch

The lack of chips has forced automakers to prioritize the production of their higher prices, and often more profitable, models.

In Texas, Toyota limited its production of its full-size Tundra. In Japan, Nissan was forced to lower its production, while Volkswagen was already lowering production rates in December, according to ABC News. Ford is also slowing down its production on the Escape and Lincoln Corsair in Louisville and Fiat Chrysler has already suspended production at plants in Ontario and Mexico, ABC reported.

Read more: Why Mercedes-Benz is shifting its focus toward EVs and away from mass-market appeal

Car companies stand to lose billions of dollars due to the disruption in supply. Alix Partners told Bloomberg car companies could lose over $14 billion in the first quarter and about $61 billion overall in 2021.

Semiconductor chips have become an essential part of the manufacturing process for vehicles, especially as cars continue to become increasingly sophisticated, leaning towards automation and electrification. The chips are used in navigation, bluetooth, and collision detection systems, to name a few, and account for about 40% of a new car's cost, according to a report from Deloitte.

A Toyota spokesperson told Insider they are working to address the impact of the shortage.

"We are evaluating the supply constraint and developing countermeasures to minimize the impact to production," a Toyota spokesperson told Insider. "We do not expect any impact to employment at this time."

Nissan has had to adjust production in North America, a spokesperson told Insider.

"We continue to work closely with our supplier partners to monitor the situation and assess the longer-term impact on our operations," the spokesperson told Insider.

See also: Ford's CEO hopes a new EV cargo van can tap into a $750 billion market - and appease his impatient investors

The other auto companies had not responded to a request for comment at the time of the publication.

The car industry isn't the only sector reliant on semiconductor chip supplies. These chips, which store data and programs, are also prevalent in all electronics and necessary for phones, gaming systems, and computers.

Demand from the tech industry as the work-from-home boom has necessitated the purchase of more personal electronics and has only accelerated the shortage, as chipmakers focused their product sales on tech companies when automakers were mostly out of the game in the spring.

Apple already saw the impact of chip shortages in the production of its iPhone 12 in November, according to Bloomberg.

The industry was just beginning to recover

The blow to the supply chain and future revenue of automakers comes during a time when the industry was just beginning to recover from shutdowns and declining sales at the onset of the pandemic.

Mass shutdowns at plants, reluctant shoppers who were less inclined to purchase a new car amidst the uncertainty of the pandemic - especially without a commute to use it on - caused companies like Ford and Nissan to furlough tens of thousands of employees in the spring.

But demand returned over the summer as low interest rates and stimulus checks made the industry more appealing. Production at the manufacturing sites also went back up as state lockdowns eased and automakers worked to meet demand.

The chip shortage and impact of the pandemic on supply chains around the world has highlighted the need for a more localized supply chain. Both the Biden and Trump Administrations have focused on rebuilding US supply chains to avoid future shortages on necessary items for companies like semiconductor chips.

Read the original article on Business Insider