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European Chip Shortage Threatens China’s Auto Industry

European Chip Shortage Threatens China’s Auto Industry

According to industry officials, a shortage of European-made chips used in automotive manufacturing threatens to disrupt production in China well into 2021, with chip makers announcing that they may raise prices and expand production in response.

From computerised engine control for improved fuel economy, to driver assistance systems such as emergency braking, the auto industry has become increasingly dependent on chips - many of them manufactured in Europe.

Due to Covid-19 lockdowns, early 2020 saw a slowdown in automotive production, but the industry has seen a resurgence in demand as consumers look to travel in private vehicles rather than using public transport.

German automotive manufacturers Continental, Bosch and Volkswagen, the world's largest producer of cars, have all warned about the shortage of semiconductor components.

“Although semiconductor manufacturers have already responded to the unexpected demand with capacity expansions, the required additional volumes will only be available in six to nine months,” Continental commented. “Therefore, the potential delivery bottlenecks may last into 2021.”

Infineon Technologies AG of Germany has announced plans to increase its investments in order to ramp up a new chip factory in Austria.

“We have already factored in certain growth for car production in 2021. Accordingly, we will adjust our global manufacturing capacities,” said the company in a statement.

It has also been reported that Dutch automotive chip supplier, NXP Semiconductors, advised customers that it must raise prices due to a “significant increase” in materials costs and a “severe shortage” of chips.

Volkswagen, the largest foreign car manufacturer in China, said that the pandemic could interrupt overall auto production, following a global supply chain disruption for some electronic components.

“The chip supply for certain automotive electronic components has been affected due to uncertainties caused by the pandemic,” said a Volkswagen representative. “This has led to a potential interruption in automotive production, with the situation getting more critical as demand has risen due to the full-speed recovery of the Chinese market.”

German car supplier Bosch also said that it was already seeing bottlenecks in the supply chain for some components.

“No supplier can elude this market development. We are in close contact with our suppliers and customers to maintain the supply chains as much as possible despite the tense market situation,” Bosch said.

According to industry insiders, the chip shortage will likely continue to impact China's car production for some time, with several international and local car companies facing production interruptions in the short-term but at different levels.

Volkswagen also said it was closely monitoring the situation and had already started coordinating with suppliers to take appropriate countermeasures.