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December 2021

Microchip crisis, how technology is changing market proposals

Simonluca Pini - Contributor Editor de Il Sole 24 Ore

According to a study conducted by the Boston Consulting Group, it will take between two and four years for the global chip crisis to release its stranglehold
Walking into a deserted dealership and receiving vastly different delivery times based on different accessories and trims. No this is not a science fiction B movie but the reality in many car dealerships, where the chip crisis is doing more damage than the Covid19 pandemic. According to an estimate by Centro Studi Promotor, in 2021, car registrations in Italy will touch 1,460,000 with a 23.8% drop compared to 2019 and a very modest growth over the already extremely depressing figures of 2020 (5.7%). If 2021 will close with less than 1.5 million new registrations, things are looking far from ideal for 2022 as well as the present microchip crisis lingers on and with it a chronic lack of cars in the showrooms. 

To understand the importance of microchips, it is sufficient to remember the on average, 3000 of these are found on a new production model. The share of microchips produced globally sees the Republic of Taiwan leading the way with a 65% share with the world leader being Tsmc which, however, produces only 3% of its chips for the automotive industry, the rest are distributed to telephone, pc, and telecommunication companies. It should be noted that besides Taiwan and China, Samsung, from South Korea, is among the largest global producers of microchips. Samsung plans to invest about 17 billion dollars to build a microchip production plant in Taylor, Texas. This would be the largest investment ever made by Samsung in the United States and will improve the strength of the supply chain increasing the availability of components used in phones, cars and other electronic devices. 
Microchip production is almost always in a state of emergency, as it is linked to possible surges in demand for new devices or unpredictable market trends that occur overnight. In 2021 things were made worse by partial factory shutdowns due to the pandemic, which resulted in a lower than usual supply of chips, the fire at the Renesas Electronics factory, one of the largest producers of microchips for the auto industry, and the subsequent trade war. 

According to a study conducted by the Boston Consulting Group, it will take between two and four years for the microchip crisis to release its stranglehold. It is easy to imagine how this will force all car manufacturers to introduce major changes in their product lines and business strategies, starting with the need to rely on stable and reliable microchip suppliers. The main change will come on the supply side, with many manufacturers committed to producing vehicles with "fixed" accessory lists or full optional equipment; this will result in greater ease in managing smaller stocks and should reduce waiting times for customers. At present, in fact, the presence or absence of a specific accessory or device can make a huge difference in the expected time of delivery of a car, sometimes by many months, so much so that several manufacturers have chosen to produce and deliver cars without a long list of extras - starting from fully digital instrumentation through to driver assistance systems - rather than further lengthening the customers’ waiting time.  

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