Why a silicon chip shortage has left automakers in the slow lane | John naughton
HIt is the story of two industries – cars and computers. In February, major automakers such as Nissan and Honda began warning shareholders that revenues were likely to fall well below expectations. And the reason was not Covid-19 – well, not directly anyway: the pandemic had already drastically reduced sales in 2020. No, the problem was that manufacturers were now unable to manufacture certain cars because they could not get the silicon chips (processors and other semiconductor components) needed to get vehicles off the production lines. production. As a result, some factories were closing temporarily or being put into operation at short notice.
Meanwhile, in the same month, the IT industry was set for a record year. Laptop sales are up 90% year over year. Sales of tablets recovered after a long slump. Even desktops and printers, for heaven’s sake, were stealing from shelves and in delivery vans. So how is it that one industry is struggling while another is booming?
The answer is that the two had found themselves caught in a perfect storm that one had overcome and the other had not. This storm bought three forces simultaneously to weigh on an unprepared world: the fragility of a global supply chain on which both industries critically depended, the demands of U.S.-China geopolitics, and a pandemic that more or less overnight, transformed the way large parts of the industrialized world worked.
Once upon a time, there were cars made in the style of Henry Ford, revolutionary at the time, but involving the holding of huge inventories of components to feed a relentless mechanized production line. As Japan began to rebuild itself after the war, its main automaker, Toyota, found a more efficient way to make them. It came to be called the “lean machine” and a key feature of it was to hold very small inventories of components and to have the necessary parts delivered just when they were needed for a particular assembly task. It was the start of just-in-time (JIT) manufacturing and eventually became the way all cars were made, as lower inventory meant lower manufacturing costs, better quality, and higher profit margins. .
But JIT critically relies on an efficient, reliable and robust supply chain. If the chain weakens, then everything stops. This applies whether it is a gearbox or a silicon chip and over the past two decades chips, especially in engine management units (EMUs), have become vital. for the operation of even the most modest petrol or diesel vehicle. We are moving towards a future where cars will be essentially wheeled computers. But even now, if the relevant bullets don’t arrive, it’s time for the crisis.
The current distress in the auto industry is that chips are not coming – for several reasons. The first is that there is a global semiconductor shortage due to the geopolitical rivalry between the United States and China. This was initially triggered by the decision to exclude Huawei from Western mobile networks. Another is that the computer and mobile industries, after seeing what had happened to Huawei, started stockpiling chips on a large scale.
A third factor is that when car sales started to decline in February 2020, manufacturers reduced their semiconductor controls, leaving relevant manufacturing capacity available to be reclaimed by an IT industry struggling to meet exponential demand caused by the increase in home working. And the coup de grace was that the automakers are relatively small compared to the electronics industry and therefore found themselves languishing at the back of a queue for a falling offer. Nissan might be a big cheese in the auto industry, but it’s a minnow compared to Apple, Samsung, Amazon, Google, or Microsoft.
So we, not to mention the automakers, have come to an interesting point. A huge industry built around the idea of propelling itself through a series of controlled explosions, which, after all, is what an internal combustion engine is, needs to make a paradigm shift. VW, Ford, Mercedes, Volvo and others will have to become IT companies.
A few years ago, looking for a metaphor that would illustrate the change to come, I came across two new cars side by side in a French parking lot. One was a Porsche 911, a glorious and beautifully crafted triumph of baroque technology. The other was a Tesla Model S. And what metaphor came to mind? On the left, instead of the Porsche, I saw a beautifully designed Nokia phone, which was great for making calls and texting and not much else; on the right, the Tesla replaced the first iPhone, which was essentially a networked portable Unix computer that could also, in a pinch, make calls. And we know how this story ends.
Nokia was a very interesting company that made great equipment. But we always had the impression that at every critical moment in the development of one of its devices, the needs of software, that is to say of IT, invariably took a back seat. The hardware guys called the shots. This is why the road that led the auto industry to its current silicon deficit has rang some bells.
What i read
An interesting New York Times article on how Nobel Laureate Paul Romer became disenchanted with the tech industry. What took him so long?
The manufacturer’s schedule, the manager’s schedule is a nice try by Paul Graham on why managers and decision-makers live in different worlds.