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Chip shortage will lead to $110 billion in losses for automakers

Experts say the industry is likely to produce significantly fewer vehicles than planned this year

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The semiconductor chip shortage is expected to cost the automotive industry $110 billion in revenue this year, according to a new analysis by consulting firm AlixPartners. The firm’s latest forecast is a significant increase from its January estimate of $60 billion in expected losses. 

Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, said several factors have led to the increase. 

“The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas and a drought in Taiwan,” he said in a press release. “But all these things are now major issues for the industry — which, in turn, has driven home the need to build supply-chain resiliency for the long term.”

Disruptions and delays

AlixPartners said these roadblocks are likely to impact the industry for a majority of the year. The industry will likely produce about 3.9 million fewer vehicles than originally planned for 2021, and the ongoing chip shortage could also delay the rollout of some 2022 models, the firm said. 

Both Ford and General Motors have announced this year that they will produce fewer cars and trucks because of the semiconductor chip shortage. These chips are used in a number of key vehicle components, including infotainment systems, brakes, and power steering. Dan Hearsch, managing director with AlixPartners, said there are up to 1,400 chips in most vehicles today. 

“There are simply going to be instances where they won’t be able to get all the parts,” he told CNBC, adding that this “really is a critical issue for the industry.” Hearsche is hopeful that the third quarter of 2021 will see enough chips to “get everybody back up and running for the most part.”

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