Chip Shortage Crisis Easing Faster Than Expectations

The semiconductor shortage that’s bogged down the auto industry for almost two years is easing, at least for now. The breakthrough comes earlier than companies predicted and marks a bright spot for an industry facing a deteriorating economy. Manufacturers are cheering the chip-supply improvement but aren’t declaring victory yet. 

Mercedes, BMW, VW and other car manufacturers are said to be operating at close to full capacity or at normal. According to Mercedes’s head of production and supply-chain management, supply issues are “here and here” but nothing like last year.

Sentiment amongst German carmakers has shown significant improvement in May. Whilst they caution that victory is not yet here, relating to the supply of chips, they are getting close and can curtail inflation costs by rising prices of cars. This slight optimism contrasts the sentiment shared by Elon Musk.

However, improvement is not industry-wide. A lot of progress needs to happen to: (a) reduce lead times for chip deliveries back to pre-pandemic levels. In May it was flat at approx. 30 weeks, the pre-pandemic peak was 15 weeks. (b) Raise passenger car output back to pre-pandemic levels. Nevertheless, the flattening of the prevailing downtrend over the last two years is emerging. And hopefully a good sign.

 

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