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Microchip Crisis Set to Ease by Late 2022

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A shortage of microchips has been rocking the economy for over a year, as products in tech and automotive spaces experienced halts to production in the face of increasing demand. But manufacturers in the motoring industry have indicated that the shortage could be set to ease by the end of 2022, and that car production volume will eventually return to pre-pandemic levels.

The crisis has received significant press since its genesis during the coronavirus pandemic, as hotly anticipated products such as the PlayStation 5 and Xbox Series X saw frustrated product launches, and their scarcity spawned a lucrative second-hand market for the devices. The automotive industry has also experienced product bottlenecks, failing to meet consumer demand and leading to historic effects in the second-hand car market.

The Origin of the Crisis

The global shortage of microchips and semiconductors can be attributed to the onset of the Covid-19 pandemic, during which major electronics manufacturing plants and suppliers were shut down either to comply with lockdown measures or due to localised outbreaks of the virus. With production of crucial parts at an all-time low – and a coincident increase in demand for electronics from a remote-working population – major automotive manufacturers reached a bottleneck in their own vehicle production. This led to significant market shortages, and unprecedented effects on consumers.

Cost to Consumers

The unfortunate effect of the chip crisis has been a historic increase in the average price of second-hand vehicles, as shortage of new models resulted in a run on the used market. This increase in cost has led to sympathetic increases elsewhere, leading new car owners to ask “is gap insurance worth it?” to cover the shortfall between their existing insurance policy and the cost price of their vehicle and ensure their investment is protected. The price hike also comes alongside historic increases in the price of petrol owing to market volatility – though an end may soon be at hand.

When Will It End?

Chip manufacturers had already stepped up production in the latter half of 2021, as the effects of coronavirus restrictions began to fade. The lead time on chip production, followed by the lead time on product manufacture, means they are yet to make a significant difference to markets – but several industry leaders have made predictions that the worst of the crisis will be well past by the end of 2022.

The CEO of Intel, Pat Gelsinger, gave 2023 as a ballpark time for supply-demand balance to be restored, citing additional problems with the matching of chips to other pieces of hardware. AMD CEO Lisa Su suggests the end is in sight, and that despite breakneck production pace and difficult deadlines, an increase in plants and manufacturing speed will see normalcy returned by the end of the year.

 

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