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Chip Shortage Could Cut US Vehicle Production by More than a Million, AAI Warns

April 7, 2021
The Alliance for Automotive Innovation urged the government to fund domestic manufacturing capacity of automotive-grade semiconductors.

The shortfall in semiconductor availability could stall U.S. vehicle production by as many as 1.27 million vehicles in 2021, says the Alliance for Automotive Innovation. In a letter to the Commerce Department, John Bozzella, CEO of the AAI, said that a recent survey of AAI member companies produced the figure. The AAI represents almost 99% of all manufacturers who sell cars and light trucks in the U.S.

The prediction falls in line with earlier predictions by other sources. Earlier this year, IHS Markit predicted the shortage would cut annual production by 1 million to 1.3 million vehicles; Alix Partners anticipated the shortage would result in between 1.5 to 5 million fewer vehicles produced.

“The chip shortage has forced a number of automakers to halt production and cancel shifts in the United States, with serious consequences for their workers and the communities in which they operate,” Bozzella wrote.

In the letter, Bozzella noted that the shortage was due to two effects of the COVID-19 pandemic: First, the commonly-reported fact that lockdown orders increased worldwide demand for lockdown, and second, that widespread auto production shutdowns in March and April 2020 led semiconductor factories (or “foundries) to move production resources into consumer-grade chips instead.

“The chips that are generally used in vehicles are not the same chips used in consumer electronics devices,” explained Bozzella. But semiconductor foundries are costly to run and maintain, and computer chip manufacturers commonly operate on contracts to keep production running as consistently as possible. When automotive factories shut down in 2020, the foundries changed their production lines to adapt to the whipsaw in demand.

And the chip shortage is only one problem facing the industry. The AAI also cited February’s severe storms, congestion in ports on the West coast, and the March Suez Canal blockage as “additional challenges” to the automotive industry.

Bozzella called for increased federal funding of domestic semiconductor manufacturing and specifically named the CHIPS for America Act and suggested that CHIPS funding, if the bill is passed, be used to increase production of automotive chips specifically.

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