Volkswagen Group has warned managers to prepare for the worst as the global auto chip shortage disrupts production. The world’s second-largest automaker is expecting the chip shortage to heighten production woes in the second quarter.
“We are being told from the suppliers and within the Volkswagen Group that we need to face considerable challenges in the second quarter, probably more challenging than the first quarter,” Wayne Griffiths, president of Volkswagen’s Spanish brand Seat, told the Financial Times.
Volkswagen Group is yet to reveal precise predictions, however, the automaker previously said it was expecting a production dip of 100,000 vehicles in the second quarter of 2021 due to the ongoing auto chip shortages. The company has warned that it does not have the necessary factory capacity to make up for the drop later in the year.
Griffiths said that the global semiconductor chip shortage is the “biggest challenge” the company faces at the moment.
Chip crisis impact on global vehicle production
Echoes of the worsening chip crisis can be heard across the automotive industry. Ford Motor Co. announced a dozen facilities closures in North America and Europe for several months, while Jaguar Land Rover will close two of its UK factories.
Renault suspended production claiming there was too much uncertainty in its supply chain. Daimler, too, is facing the woes as it cuts the hours of more than 18,000 workers in Germany in a bid to lower production levels.
Both, automotive industry leaders and laggards have lost out on producing hundreds of thousands of vehicles at the start of the new year. This semiconductor chip crisis, which began last year, but worsened due to the Texas storms and a fire at the Renesas chip factory in Japan, comes as companies bank on a sharp recovering in demand after the COVID-19 pandemic.
China stockpiles chips
To make matters worse, China is aggressively taking steps to protect itself from the U.S. technology ban. Chinese companies bought $32 billion of equipment used to produce semiconductor chips from Taiwan, Japan, South Korea and elsewhere.
With companies like Huawei Technologies Co. stockpiling chip supplies ahead of U.S. sanctions, imports of chips soared to roughly $380 billion – making up 18% of all of China’s imports for 2021.
Taiwan Semiconductor Manufacturing Company, which has been running at full capacity expects the ongoing auto chip shortage to last until 2022. Nanya Technology, Taiwan’s leading chip maker, recently announced plans to invest $10 billion in a new plant to meet the ongoing shortage and set market dominance for 5G-related components.
Analysts believe the semiconductor chip shortage could end as quickly as it began in 2020 if electronics spending ends as the COVID-19 pandemic subsides. “There’s a possibility that much of the demand is phantom,” says Nikki Weinstein, an analyst at a New York firm.
