Automotive Industry Estimates Billions In Losses In 2021

The global chip shortage has been covered by all car news outlets and only just recently it became clear just how devastating it is for the automotive industry. Automakers may have to compete against each other to secure their supply of chips but the ramifications go much deeper.

Looking at how modern cars are produced, chips play an important role. Regardless of how far down the production line they are, a shortage of chips halts the entire chain. This means that other manufacturers that supply parts for the automotive industry will also need to reduce their production due to lower demand. This means that far more industries are affected by the chip shortage and not just the automotive market.

To get a grasp of how big the impact of this shortage is, consulting firms began estimating the losses in revenue for the automotive industry. According to AlixPartners, there will be a cut of just over $60 billion in revenue for the automakers. Car news outlets have not yet estimated the revenue loss for parts suppliers which will add many more billions to the total.

Ford believes it will shave off its balance sheet up to $2.5 billion in earnings while General Motors predicts a $2 billion loss. Japanese automakers have not been spared and Nissan and Honda estimate that their sale figures will be reduced by 250,000 units due to this shortage. Their estimates are for the first quarter alone which means at least 1 million fewer units for the entire year.

At the root of this entire problem lays the shortage of wafers. According to some car news websites, the crisis began in early 2020. The global pandemic caused shutdowns which affected products as well. Since chips have a 26 week lead time to be made into chips before being transferred into cars, the effects of the shutdowns started manifesting in late 2020 and still is present in 2021.