Chip shortage expected to cost auto industry $210 billion

The semiconductor chip shortage that’s roiled the global car market is now expected to cost the industry $210 billion in revenue this year, consulting firm AlixPartners said Thursday.

The revised forecast is nearly double the New York-based firm’s projections from May, when it expected to see $110 billion in lost revenue due to the shortage.

Semiconductor chips are a critical component in new cars that power features ranging from entertainment systems to power steering and brakes.

Supply has been constrained during the COVID-19 pandemic due to shutdowns at factories amid outbreaks as well as surging consumer demand for electronics that use the chips.

“Of course, everyone had hoped that the chip crisis would have abated more by now, but unfortunate events such as the COVID-19 lockdowns in Malaysia and continued problems elsewhere have exacerbated things,” said Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners.

Semiconductor chips power features ranging from entertainment systems to power steering and brakes.
Alamy Stock Photo

On top of the chip shortage, the industry’s grappling with economy-wide issues like a lack of workers and a steel shortage, Wakefield added.

“There’s no room for error for automakers and suppliers right now; they need to calculate every alternative and make sure they’re undertaking only the best options,” he said in a statement.

The group said it’s now forecasting that 7.7 million units of production will be lost in 2021, up from 3.9 million in its forecast published in May.

New Ford F-Series pickup trucks are stored in a lot.
An estimated 7.7 million units of production will be lost in 2021 due to the shortage.
Jeffrey Scott Dean/Bloomberg via Getty Images

Major automakers, including Ford and General Motors, have warned investors that the chip shortage could hurt their earnings, and have continued to deal with limited production capacity.

While there’s still no end in sight for the shortage, the companies have managed to make up for the higher costs thanks to strong demand for new cars and surging prices.

The White House is exploring ways to alleviate the shortage. Commerce Secretary Gina Raimondo and White House National Economic Council director Brian Deese are expected to meet with companies Thursday about the issue.

President Joe Biden (C) speaks during a CEO Summit on Semiconductor and Supply Chain Resilience.
The White House is exploring ways to alleviate the shortage, asking Congress to approve $52 billion in spending to increase US production of semiconductor microchips.
Amr Alfiky/Pool/Getty Images

Executives from Detroit’s Big Three automakers as well as Apple, Daimler, Micron, Microsoft, Samsung and others are expected at the meeting.

The White House has previously said it wants Congress to approve $52 billion in spending to increase US production of semiconductor chips.