The World Still Does Not Have Enough Chips and Why Aren’t They Making More?

The chip shortage continues to plague various industries dependent on its supply, including the automotive industry. A board member from BMW who oversees production, Milan Nedeljkovic, told reporters at a recent BMW iX event that productions are being halted at various sites, from single shifts to entire days. As a result, they had lost output by about 30,000 units thus far this year and the outlook for the remainder of the year “remains critical”.

To catch you up, the pandemic brought car sales plummeting to almost zero in some places, causing carmakers to halt and cancel orders for semiconductor chips, which are essential components in building a car.

Meanwhile, with lockdowns being implemented worldwide, working and schooling from home have become the norm, bolstering demand for laptops, phones, game consoles, etc, all of which requires semiconductor chips. So chipmakers redirected their focus to the consumer electrics industry.

The problem began when car sales kickstarted again and car manufacturers started to ramp up production again. Now, there are not enough chips for everyone and no one is happy.

Exacerbating the problem is stockpiling or double-booking of chips. SCMP reported that due to the uncertainty of trade relations between China and the USA, telco giant Huawei began hoarding chips starting 2019, which means that there are less supply left to go around. Other chip buyers book more than they need, as a reaction to uncertainty in future supplies. So, chipmakers have to determine how much their customers really need so no one can hog the limited supply.

So, why don’t these chipmakers just make more chips? Well, chipmakers also face the same constraints as other manufacturing businesses do. They have had to work while adhering to restrictions to prevent infections from breaking out among their employees and have to shut down factories each time infections do occur, both of which slow down production. Perhaps more importantly, chip companies are reluctant to significantly ramp up production because it means investing in more production lines and facilities, which could all be superfluous when this mess (the pandemic) is over.

Here’s an interesting trivia: Guess what triggered a global chip shortage in 1997? It was the immense popularity of Tamagochi, the digital pet “kept” in a small handheld device which, yup, you guessed it, had a chip in it.

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