The global shortage of semiconductors is hitting automakers around the world.
Here in Korea, General Motors had to completely shut down two of its plants, and Hyundai Motor once again suspended its Sonata plant on Monday and Tuesday.
The shortage has gone on for months, and there's little sign of improvement.
So how is it that this shortage came to affect the entire global supply chain? And how is the situation being dealt with by companies and governments?
For more, our Kim Sung-min joins us the studio.
Sungmin, you've spent some time digging deep on this issue.
We know that demand for chips is far outstripping supply around the world. How serious is the situation right now?
Hi Devin, just in South Korea, the automobile industry is forecast to produce 120-thousand fewer units this year due to the chip shortage.
That's roughly 3.4 percent of the three-and-a-half million cars that Korean auto makers produced last year.
GM Korea is the latest Korean auto company to halt its assembly lines.
Two days ago, it suspended production at its Bupyeong Plants 1 and 2 for a week.
A complete shutdown sounds like something that would be a major loss for the company.
Yes, Given that the combined production of the two plants amounted to some 23-thousand units in March they are expected to see a loss of around 6,000 units.
GM Korea isn't the only one. Other local carmakers need a lot of chips for the high-tech features in their products. How about the others?
Hyundai Motor suspended two factories, one of them being the plant producing the company's all-electric vehicle IONIQ 5 which was launched just two days ago to great fanfare.
But with the halt, industry watchers expect the loss of 6,500 units of the model which is huge considering 40-thousand units had been pre-booked ahead of the official launch.
As for other global firms, General Motors and Ford have shut down some of their North American factories since February,… and are extending those shutdowns
In February, GM said it expected the chip shortage to cut its earnings by up to 2 billion U.S. dollars this year.
That's almost as much as its quarterly net profit, as the company made 2.8-5 billion dollars in the fourth quarter of last year.
Ford also said its earnings will be hit by 1 to 2.5 billion dollars in 2021.
Overall, the consulting firm AlixPartners expects the shortage will cost the global automobile industry 60.6 billion dollars in revenue this year.
Cars these days have a lot of features they didn't use to have, even five years ago. Things are changing fast, so many of us probably don't know just how essential these semiconductors are now to the industry.
Right. Automobiles might not be the first thing to pop up into our heads when we think of semiconductors but surprisingly, around two to three hundred chips are needed to build one car.
They are used for making sensors that detect obstacles when parking, to check the pressure of tires and for airbags to deploy.
This is for automobiles in general but electric cars need two to three times more chips and self-driving cars need more than 2-thousand chips for one car.
That explains why the chip shortage is taking such a big toll on the automobile industry. But how did this global chip shortage happen in the first place?
Simply put, the industry failed to forecast the demand. With the COVID-19 raging across borders, many expected the automobile industry to be hit hard.
So manufacturers producing chips for cars swiftly shifted their assembly lines to produce semiconductors for other IT products like PCs and smartphones, which saw massive increases in demand with the social distancing measures.
But the automobile industry bounced back quicker than anyone could have expected, to the point where the supply couldn't keep up with the demand.
Just last week TSMC, the world's largest chip foundry, lost power at one of its facilities in Tainan City causing a massive production loss likely up to 27-million dollars' worth. Surely this would have made the situation worse.
Yes you're right. There have been some other issues that severely aggravated the supply shortage.
As well as the power outage at TSMC, the winter storm that ravaged Texas, the center of U.S. semiconductor manufacturing, forced many factories to shut earlier this year.
And Japan's Renesas, the world's third largest automobile chip producer, also suffered a factory fire that could take four months to recover from.
These incidents all further deepen the already serious global chip supply woes.
South Korea is one of the leading producers of semiconductors, but that's not the case when it comes to the chips Korea's carmakers need. They actually import 98 percent of the chips they need. Why is that the case?
It seems a bit ironic, but experts say that local chip firms prefer to concentrate on other types of chips.
"There has been constant research on automotive chips but domestic car manufacturers preferred foreign products and automotive chips have low profitability. So the local supply ended up being very small. They chose not to produce them. It's not that they can't produce them."
So I understand that the situation is serious for the whole industry. How are we dealing with the problem now?
Automobile companies are of course trying to secure as much stock as possible, but what's more interesting is the effort coming from the government. Just last week South Korea had an expanded economy-related ministerial meetingwhere President Moon Jae-in pledged strong support.
They are expected to come up with detailed plans within the first half of this year including a system to improve the weak supply chain, adjusting the amount of tax deducted for research and development and expanding investment.
The country in fact has broader plans for next-generation cars planning to spend 330-million U.S. dollars for R&D into next-generation vehicles.
Other nations are also ramping up efforts to place themselves at the center of the global automotive chip supply chain.
U.S. President Joe Biden recently met with executives in the semiconductor industry, and proposed 50 billion dollars of support for chip manufacturing and research.
China aims to increase its local semiconductor supply by up to 70 percent by 2025.
So governments are taking the situation seriously, looking for solutions, and so are manufacturers, of course. At this point, how long do we think the shortage will last?
Unfortunately,experts say that these might prevent the future shortage in the long term but will not become an instant fix.
"The impact could last until next year due to unexpected situations along with rapidly growing global car industry,especially electric cars. Even if the chip makers increase their production it will take at least a year."
As he briefly mentioned. the fact that we're at the transition period into next-generation cars could put even more pressure on the industry but I guess this incident has become a valuable lesson for many countries. It will definitely accelerate the development of semiconductors, which are crucial for future industries.
Thank you Sungmin.