How did the world’s carmakers run out of chips? It took a year of bad planning, broken supply chain and ‘just-in-time’ gone awry

Seeds of the imbroglio were sown almost a year ago as the virus outbreak led to plunging car demand, prompting auto-chip companies to slash orders. But when they wanted to increase supply toward the end of 2020, they struggled to secure capacity at Taiwan Semiconductor Manufacturing (TSMC) and other contract chip makers that were busy servicing a boom in demand for gadgets that help housebound consumers stay connected, according to people familiar with the situation.

While publicly assuring the problem is solvable, in private the parties are pointing fingers. Chip makers say car companies’ preference for low inventories hurt their planning, while auto and part manufacturers say the supply chain is thrown into disarray as semiconductor makers drag their feet. Carmakers also contend chip makers are prioritising consumer electronics because those devices provide the bulk of their sales and profits. Chip makers deny they are playing favourites.

SCMP Infographics: Semiconductors and the Made in China 2025 industrial master plan

The quagmire reveals the risks for carmakers from Ford Motor to Volkswagen as vehicles become smarter and technologically more complex. Carmakers with more software and chip expertise are set to face a smoother ride, while those whose traditional strength is metal-bending are potentially more prone to supply hiccups.

“Even if the OEMs say they didn’t overcorrect, they may not have been thinking far enough ahead,” said Tor Hough, founder of Elm Analytics, a supply chain research firm based in the Detroit area, referring to carmakers, or original equipment manufacturers in industry parlance. “They’re also very wedded to ‘lean manufacturing’ – so keeping low inventory to be more cost efficient.”