The Insider: Industry insight on the semiconductor issue
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It’s hard to imagine how something so tiny, can cause such a big crisis.
You may have heard of the semiconductor issue by now. Semiconductors are tiny electrical components – a microchip of sorts - that help power everything from your phone to your car.
If a product could be considered ‘smart’ – whether that’s a washing machine, a tablet, a television, or a car – chances are it has literally thousands of semiconductors within it that help facilitate the technological wonders we’ve come to expect from every modern product.
The problem is, they’re in critically short supply which has led to product shortages from all technological companies such as Apple, Intel, and Samsung etc. Unfortunately, the entire automotive industry only accounts for 4 per cent of the total semiconductor market which means these big tech corporations take priority over automotive brands.
It’s the result of a perfect storm of factors. As the world shutdown because of COVID-19 a lot of factories that produced semiconductors shutdown with it – but that was just the tip of the iceberg.
One of the major semiconductor plants in Japan was burnt to the ground by a fire, another manufacturer in America was incapacitated by their harsh winter storms, the stand-off between Huawei and the United States government caused ripples throughout the supply chain, and crucially consumer demand soared.
As people have been locked in their homes worldwide with the inability to travel or dine out, their discretionary income has shifted. People are buying new electronics to entertain the kids, redecorating their kitchens with the latest smart appliances, and upgrading their vehicles to the latest luxury offerings.
The economic boom that’s delivered Jaguar Land Rover New Zealand its best year on record, is also the issue that’s causing headaches for us – and the wider automotive industry.
Some reports indicate that the US automotive industry alone is set to drop their production of vehicles by up to one and a half million units.
Jaguar Land Rover is no different, we’ve also had to drop our quantity of production. Our vehicles take between 1000 and 3000 semiconductors to operate, and some of our top-of-the-range technological vehicles such as the all-electric Jaguar I-PACE require even more.
So, what does this mean for customers?
The best advice I can offer is if you see a car you like – get in early and order it. When vehicles are being produced globally for manufacturers, orders that are pre-sold to customers are prioritised.
There is no doubt that this is a serious issue that is causing ripple effects across the world – from manufacturing, to supply chain, to retailers and distributors, and of course to customers.
The shortage of supply across all industries, has meant the levels of discounting has dropped significantly. However, for the automotive industry and in particular, Jaguar and Land Rover trade values have increased at such a rate that the shortage is having a positive effect on the changeover price. With fewer new cars on the road, and no clarity on when the issue will be resolved the value and demand for these vehicles is likely to remain strong.
The painful part for me, and indeed all leaders within the automotive industry, is the uncertainty of the shortage. Quite frankly, we’re not sure when the turmoil will end.
Some commentators have speculated this could be a thorn in our sides for another year or two, where others believe we could see an easing in the first quarter of 2022 – but how long that reprieve takes to reach New Zealand remains to be seen.
The acclaimed economist Rory Green once referred to semiconductors as “The New Oil” because of their dominance in modern life.
Perhaps he is right – because we’ve certainly been inundated with savvy customers embracing this new-age oil boom, and despite the severity of the issue, we’re doing our absolute best to ensure New Zealanders are well served.