OEM Risk Mitigation Strategies for the Chip Shortage

The Chip Shortage Crisis has Permanently Impacted the Automotive Industry, Rendering it Wary of Supply Competition, and it is Rebalancing Global Automotive Chip Supply Chains

The automotive industry is heavily reliant on semiconductor chips for various critical functions, including engine management, infotainment systems, and advanced driver-assistance systems (ADAS). However, the global shortage of semiconductor chips, which emerged in 2020 and continued into 2022, has severely impacted automotive original equipment manufacturers (OEMs) worldwide. To counter this challenge and navigate the crisis, automotive OEMs have implemented several mitigation strategies, and their financials indicate that most have returned to pre-pandemic growth rates.

Nevertheless, the semiconductor crisis is far from over for the automotive industry. Most of the measures taken to tide over the crisis (for example, government litigation to enable capacity addition and increase supply and expansion plans, which several chip suppliers undertook) are yet to bear fruit. Semiconductor manufacturing is an extremely complex process with long lead times, making it impossible to increase or decrease supply within a brief period, which resulted in the crisis in the first place. Setting up chip manufacturing facilities takes a considerable period of about 3-4 years. Despite this, most of the automotive industry has emerged from the crisis and is moving ahead. Moreover, different OEMs have had varying impacts on their operations, depending on their geographic location and a gamut of other factors.

This study offers an in-depth strategic analysis of OEM performance during the crisis and the various measures being taken to tackle it.

Key Issues Addressed

• How important is the semiconductor chip in the automobile?
• Who are the key market participants? What are their market shares?
• What is the sequence of events leading to the crisis?
• How has the automotive industry contributed to the crisis? What is a brief timeline of the various measures it has adopted since the crisis commenced?
• Have all the OEMs been impacted uniformly? What has caused the differential impact? Is there a geographical bias, and why?
• Who are the least-impacted and most-impacted OEMs? What strategy do they employ?
• What are some interesting partnerships among stakeholders?