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Global chip shortage threatens automakers worldwide

Toyota, Volkswagen and others put brakes on vehicle production

A global semiconductor shortage is causing automobile manufacturers to scramble and ultimately cut back on production.

TOKYO -- The auto industry is facing a severe lack of semiconductors amid rising use of the chips in other products, like smartphones and communication base stations.

This has forced Germany's Volkswagen as well as Japanese makers like Honda and Nissan to reduce production.

Toyota Motor has decided to reduce production of its Tundra pickup truck at its plant in the U.S. state of Texas due to the semiconductor shortage. The company has not released details on the size or time frame regarding the production cut but is looking into whether the lack of semiconductors will affect other vehicles.

In December, a Toyota representative explained to group auto parts companies in Japan that it has yet to determine whether it can secure enough semiconductors. Normally, Toyota would be explaining its production plan for the upcoming year. But the global chip crunch has caused the automaker to struggle to formalize a plan.

Nissan Motor will cut production of its flagship vehicle Note by 5,000 units in January, a reduction that may continue through February.

Volkswagen has already announced that it would cut production in China, North America and Europe. In Germany, the company also halted production of its Golf model starting in December and lasting through mid-January.

Meanwhile, Spanish automaker Seat, which is under Volkswagen, will also cut production from the end of January until around April. Honda has also decided to reduce production of its Fit subcompact car by 4,000 units this month at a factory in Japan's Mie Prefecture.

Management at Subaru has also been cautious due to the lack of semiconductors.

Most automakers have been scrambling, as deliveries by German auto parts suppliers like Continental and Bosch have been delayed due to the chip shortage. Semiconductors procured from major companies such as Dutch-American NXP Semiconductors and Switzerland-based STMicroelectronics have lagged.

Semiconductors have become crucial for the auto industry as electric vehicles and autonomous driving become more popular. According to KPMG Japan, an EV uses twice the number of semiconductors compared to that of a gasoline-powered vehicle.

While the auto industry is seeing a rebound in demand, the coronavirus has also led to an increase in the use of PCs and smartphones. Semiconductor companies are struggling to meet the surge in demand as orders for different types of semiconductors pour in.

A major cause of the bottleneck comes from the semiconductor industry's horizontal configuration, in which production and development are separate, with each manufacturer specializing in a particular task.

Chipmakers often place orders with contract manufacturers instead of fabricating chips in-house. It takes time to manufacture semiconductors while reconfiguring lines to accommodate varying specifications, making it difficult to turn out different chips at the same time.

Kazuhiro Sugiyama, a consulting director at U.K. research company Omdia, said the competition has intensified, with orders to Taiwan Semiconductor Manufacturing Co., the world's largest contract manufacturer, on backlog for the next six months.

Auto supplier Continental has said that "it will possibly take half a year" until supply for vehicle semiconductors normalizes.

Automakers halted most production in the first half of 2020 as the pandemic spread. In the meantime, semiconductors were being purchased for smartphones and communication base stations.

The chip scarcity has become a new issue in the auto industry, but as cars become more sophisticated, the demand for semiconductors will continue to rise.

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