If you’re looking for a new car then you might have noticed that the lead times on new vehicles are longer than they were this time last year.
This is due to a number of factors, the most prominent of which are the UK’s departure from the EU and the worldwide pandemic. Although some of the impacts of Covid-19 are obvious like factory closures and shipping holds there are others that aren’t as obvious. One of the less obvious impacts that the pandemic has had on the worldwide motor industry is a microchip shortage.
What Are Microchips and Why Are They in Cars?
Modern cars are full of high-tech solutions and features that require a microchip to run them. A microchip is essentially a small computer that allows certain aspects of the car to work correctly, for example the touchscreens in the centre consoles or blind spot detection systems need particularly complicated microchips to run them.
Microchips need particular conditions to be produced in order to prevent damage to them, and they must be built in very clean factories where there no dust or static electricity that could damage them. The process of building microchips is very time consuming and expensive to make and it takes time for the factories to switch between models of chips.
Why Is There a Shortage of Microchips?
Because of the conditions that microchips need to be produced in, there are only a few places in the world that produce them. In fact, 70% of the world’s microchip supply come from just one Taiwanese supplier.
Microchips aren’t just used in cars though, they’re also needed for many other items including technology like tablets, phones and gaming consoles. However, the type and power of the chips needed varies between the use of them.
Faster and more powerful chips are more expensive and time-consuming and so the manufacturer of the microchips are able to charge higher premiums on them. Technology companies want higher power and faster chips for their new technology and so their chips are often prioritised as they can provide the company with more income.
Car brands don’t update their technology as regularly as mobile and gaming providers and so use slightly older and less powerful chips, which in turn means they are not as profitable for the producer.
Over the last year the pandemic saw a lot of factories shut as there was not as high a demand for new vehicles and so many took advantage of furlough schemes or slowed production to meet this reduced demand, as well as needing to close around national restrictions and reopen in reduced capacities with social distancing measures in place.
As demand for microchips in the automotive industry decreased other sectors saw an increase. With more people staying at home tech companies saw a rise in orders for new phones and tablets with higher capacity and the release of new gaming consoles like the PS5 and Xbox X meant that their demand for microchips increased.
The increase from tech companies for the more profitable chips means that when car companies began reopening factories and ordering microchips again they had a longer time to wait. As well as other companies having their orders placed before automotive manufacturers, it’s difficult and costly for the chip manufacturer to switch between producing one kind of chip to another.
The higher demand from other sectors saw an expected delay of around six months for motor companies getting new microchips for their vehicles. However, there were then additional complications that have seen that timeframe increase to almost double.
12% of the world’s microchips are made in the USA and a high portion of them are made in Texas. In February the US was hit by bad storms, in particular Texas had one of the worst winter storms in its history which led to power cuts across the state and lead to microchip factories closing.
Infineon is a company with a factory in Texas that had to close due to the bad weather and they have said that it would take them four months to get back to normal production levels following on from this. Before the storm hit the chips that Infineon planned to put into production for the next 12 months were already reserved.
In March we saw another hit to the worldwide microchip supply with the closure of the Renesas factory in Japan as part of the plant caught fire. The factory had to close but has slowly been heading back towards production levels from before the fire and expect to be at a 100% production capacity again by the end of this month.
What Does the Microchip Shortage Mean for My New Car?
We’ve given you a lot of information so far about what microchips are and why there’s a worldwide shortage but what does this really mean if you’re looking for a new car?
The shortage of chips means that many manufacturers have had to change the optional extras and even the current features on some of their models to try and ensure the chips they have last for as long as possible, or because they’ve run out of the specific microchip needed for a particular function.
For example, Peugeot have switched back to using analogue dials in the 308 rather than the more modern digital display screens, and Renault have downsized the size of the digital driver display and removed wireless charging from some models.
Other manufacturers have actually had to pause production on particular models until they receive more microchips, as they are essential for the basic functions and features of the vehicles.
This includes Mercedes pausing production of the GLC because they no longer have the necessary microchips, Jaguar Land Rover pausing production of the XE, XF, and F Type as well as the Land Rover Discovery Sport and the Range Rover Evoque, VW group have closed the factory that produces a number of models including the Audi Q7 and Q8, and Mini closing their Oxford production plant temporarily until they are able to source more of the microchips they require.
Other manufacturers have reduced the number of vehicles they are making, slowing production to try and make the microchips they do have go further. BMW have slowed production of their X1 and X2 hybrid models, Mazda cut production by over 7,000 cars for the first quarter of 2021, and the Stellantis group, who own some of the main brands worldwide including Fiat, Chrysler, Citroen, Peugeot and Vauxhall, had to slow eight of their 44 factories temporarily which has meant the group produced 190,000 fewer cars in the first quarter of this year then they were expecting to.
The halting of particular model productions will obviously have an impact if you are after one of these models because the production might have temporarily suspended but there are also a number of orders for these vehicles placed and waiting for production and the order lists continue to grow. Unless you have a particular need for one of these models then we would recommend looking at similar alternatives that are still in production. If you are looking to lease but are unsure what alternative models will fit your needs then give us a call on 0330 221 0000 or request a call back via the purple phone in the bottom left of your screen.
Similarly, demand for models that have had to reduce production numbers will continue to grow the order list and so although the lead time might be slightly quicker than the models that have been paused it will still be longer than usual.
How Long Will the Microchip Shortage Last?
Infineon has said that they estimate that 2.5 million cars could be delayed due to the shortage of microchips in the first half of this year alone. Other industry estimates predict that as many as five million vehicles will be delayed by the end of this year.
Microchips and Electric Vehicles
Many modern electric vehicles have more complicated electronics for running their motor and batteries, as well as lots of 5G connectivity components, which are more advanced and so worth more financially to the microchip companies so it’s likely they may not be as badly hit as the rest of the industry.
What Can I Do to Avoid the Microchip Crisis?
If you need a new vehicle and don’t want to be affected by the current worldwide microchip shortage then there are a few options for you to choose from.
Instead of waiting for a factory order you might instead want to consider an in stock vehicle. With a stock vehicle, you’re less likely to be able to add additional packs or features however you will be able to receive delivery quickly and won’t need to wait months for microchips to be sourced.
Check out our in stock deals if you’re wanting to lease a new vehicle.
There were some brands who continued to receive their microchips during their factory closures, or who stockpiled chips and so aren’t as affected by the shortage. One of these brands is Hyundai and you can see our top offers on the full Hyundai range here.
If you’re looking to purchase rather than lease another option would be to look at used vehicles. Again, these are already built so their lead time will not be impacted by the microchip shortage.
Purchasing a used vehicle comes with its own challenges so you’ll want to consider whether this is the right choice for you and your next vehicle.