How The Semiconductor Shortage Continues To Haunt Stellantis?

The semiconductor shortage has been plaguing the automotive industry for a few years now, and it doesn't seem like it's going to end anytime soon. The automotive industry is the most directly impacted by the low supply of chips. It occurred as vehicles rely on semiconductors to function.

The shortage in semiconductors has caused companies to suffer, as they cannot get their hands on more supply of chips to produce their vehicles. One company that has been particularly hit hard by the semiconductor supply issue is Stellantis. The shortage is affecting the business in a big way.

How the problem started

April 2020 was the height of the pandemic, which rattled many sectors. Automotive production came to a screeching halt as it was struck by an enormous impact when the pandemic started. It affected the snarling supply chains around the world. The dealers had to close their doors, and they were left with no choice since the stock of vehicles in the inventory was low to nothing. Also, very few people continued buying new cars.

Unfortunately, chip producers had spent the rest of their year idle due to health protocols and restrictions. They had to rush to navigate the increased pressure from different business sectors struggling from the pandemic-induced hardships. Moreover, some semiconductor firms suffered disasters that caused further setbacks, such as the following:

The Japanese-based Asahi Kasei Microdevices (AKM) and Nittobo endured fires that affected the supply of chips at the desired scale.

The Renesas Electronics Corporation also suffered prolonged blackouts, followed by a fire incident.

Winter storms caused power outages in Texas, prohibiting domestic chip production for Infineon, NXP, and Samsung.

Stifling chip production at Bosch, Infineon, and GlobalFoundries in Germany and its neighboring countries as they experienced limited access to energy.

Even before the coronavirus outbreak, the semiconductor industry was already reeling from some issues. Since people were stuck indoors, the selling rate of smart devices, computers, and other small electronics has soared tremendously. Many consumer-electric manufacturers chased the money, so fewer chips were reserved for the automotive sector. It set the stage for various problems when vehicle production resumed.

Chip problem continues

Two years after the coronavirus went global, these are still a huge problem, especially for the auto industry. As Sam Fiorani, the vice president of global vehicle forecasting at AutoForecast Solutions, said, the semiconductor shortage is not a quickly solvable issue.

Semiconductors are crucial in consumer electronic manufacturing, such as computers, smartphones, cameras, and many more. In vehicles, they are a vital part needed for various systems inside the car. Depending on the vehicle's level of connectivity, the average can have more than 100 chips on board. The ongoing chip scarcity is a massive problem for the industry as many cars require semiconductors to control electrical and powertrain systems, safety features, connectivity, infotainment, and more.

The supply chain and ongoing chip caused reverberations across many sectors. The shortage of chips and supply crunch for the auto industry has forced companies to cut production and delivery targets. As a result of the halt in production, it dents the sales of dealers and car companies. The supply issues severely hampered the automotive industry, and it has also led to some profit warnings for various automakers.

According to J.P. Morgan Research, more chips could be available in the second half of 2022. Additionally, they see that the shortage is nearing the end, but the available chips may not be the perfect type to satisfy all demand. Stellantis and other automakers believe that the semiconductor supply will unlikely meet the auto industry demand until 2024.

Chip manufacturing investment

The Stellantis CEO, Carlos Tavares, suggested that the global chip shortage will persist through 2023. In an interview with the French outlet Le Parisien, he said the situation will remain complicated until the end of 2023.

Despite the price increase of semiconductors, the Stellantis executive mentioned that the problem may ease a little after the end of 2023. The silver lining is that the chip manufacturers are interested in doing business with them again.

The company had already invested tens of billions of euros in Europe and the US in fostering local microchip industries that will boost the supply in the long term. Tavares said that when the investments materialize, they will have more supply of chips, and there could even be overabundance. However, they will need to wait at least three years for that to happen.

Impact of chip shortage on Stellantis

Due to the shortage of semiconductors, the Stellantis plant in Vigo, located in northwestern Spain, had to halt production for 15 days in February. The EV production at the Melfi plant in Italy was also stopped last June for the same reason.

Recently, the company cut shifts at the Warren truck assembly plant in the north of Detroit. Jeep accessories and crucial parts such as wheels, suspension systems, and more are assembled in the Warren plant. The assembly of Wagoneer, Grand Wagoneer, and the older version of the Ram 1500 pickup are also included.

The actual jobs were not cut, but the work hours for certain employees were changed. The reduction in work hours for full-time seniority employees and non-seniority supplemental employees will be moved to the other shifts. No layoffs were planned, but they had to cut the third shift to improve production efficiency.

In July, a union in Italy already gave a warning that the chip shortage could cost Stellantis the production of up to 220,000 vehicles in 2022. According to the Stellantis union representative, more shutdowns at any moment could happen because of the ongoing supply shortage.

For the automotive sector, the challenges continue as they try to adapt and find solutions to the semiconductor crisis. It remains to be seen how Stellantis and other companies will weather the storm in the coming months.

Waiting for the global chip shortage to end

The semiconductor shortage continues to haunt automakers, and it could be nerve-wracking because many brands are under the wing of Stellantis. Despite the challenges, the company is hopeful that the situation will improve soon. It is also doing everything it can to minimize the impact of the semiconductor shortage. The company's move to invest in local microchip industries will boost the supply in the long term, but the situation will remain complicated until the end of 2023.