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Though Difficult Now, Chip Shortage Could Be Good in the Long Run

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semiconductors

A quick Google search of the phrase "semiconductor shortage" brings up what are now unsurprising results.

The headlines all start to become blurred together, but the point is clear: The automotive industry has been hit hard by the shortage, probably more so than any other sector of the economy, and the impact is more far reaching that it seems any analyst or expert initially projected. 

A report from CNBC in September said consulting firm AlixPartners initially projected in May the shortage to cost the auto industry 3.9 million units and around $110 billion in lost revenue. At the time of the report, though, AlixPartners had to more than double its initial projections, estimating the industry has now lost 7.7 million units and upward of $210 billion.

“Of course, everyone had hoped that the chip crisis would have abated more by now, but unfortunate events such as the COVID-19 lockdowns in Malaysia and continued problems elsewhere have exacerbated things,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, in a statement cited in the report.

Most affected have been the OEMs themselves—General Motors saw its revenue dip by nearly 25 percent in the third quarter according to CNN Business, down to $26.8 billion despite "record high car prices caused by the limited supply of cars for sale." Ford Motor Co. fared slightly better than its rival but still saw revenue drop by around 5 percent to $35.7 billion according to the New York Times. 

To make matters in the short-term seem even gloomier, a report from DBusiness outlined the effects the shortage could—and probably will—have on the national GDP. 

Over the course of the past year, lockdowns and other preventative mandates across the globe have caused semiconductor chip manufacturers to shutter their plants temporarily from time to time, all while demand for computers, vehicles, video game consoles, phones and other technology that use those chips has drastically increased.

"Although semiconductors only directly contribute about 0.3 percent of the U.S. GDP, they are necessary to produce 12 percent of the national output," the DBusiness report says. "As a result, the supply chain bottleneck is forecasted to cost as much as 1 percent of 2021 U.S. GDP growth."

So, at least in the short-term, the auto industry is going to feel the pinch. However, DBusiness says the long-term outlook is already looking brighter directly because of the shortage.

The pandemic highlighted weaknesses in the supply chain, and in the U.S. specifically it showed an increasing reliance on other countries for its chips—the report shows the U.S. only manufactures about 12 percent of the world's semiconductors by accounts for 47 percent of all global sales. 

Because of the, the federal government has allotted $52 billion in funding for "semiconductor-related initiatives," partnering with tech companies such as intel to boost U.S. chip production infrastructure. 

Demand, in general, is a good thing. Over the next five years, the U.S. is on track to catch up to increased chip demand. That means more cars on the road and, most importantly, in your shop. 

"Although the current chip shortage has caused an economic disturbance, it is important to remember that high demand is promising, and low capacity is temporary. Semiconductor companies are continuing to expand, and governments are seizing the opportunity to invest in one of the fastest growing industries in the world," the report says. "Looking past fear-mongering reports and low short-term output, we see that the chip shortage indicates long-term economic expansion."

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