Automakers’ inability to fill the demand for new cars stole the spotlight in the global chip shortage, but with semiconductors being the brains of modern electronics and artificial intelligence — think video game console or a smart refrigerator — they’re not the only industry feeling the effects, according to a recent Scotiabank Economics report.
The report’s authors Tuuli McCully, Head of Asia-Pacific Economics and Rebekah Young, Director, Fiscal & Provincial Economics, note that the shortage has spread to a variety of industries, including consumer electronics, home appliances, defense, medical devices, and clean energy. Global semiconductor sales totalled US$440 billion in 2020 with networking and communications, and data processing accounting for about two thirds of the semiconductor market share, followed by consumer electronics and the auto sector, according to the report.
Several events contributed to the chip shortage, the report notes, including the mass move to work-from-home brought on by the pandemic, coupled with a host of production disruptions. Chip producers were already running near maximum capacity, while some industries were stockpiling chips as tensions grew between the US and China over the roll-out of 5G networks. That tension will persist, the authors note, particularly with the US recently strengthening its relationship with Taiwan, which produces the most advanced chips and is the largest exporter globally.
The auto sector has experienced the largest impact thus far because several decades ago it embraced just-in-time supply chain practices that keep its inventories very low, relative to other manufacturing sectors. In North America alone, unmet demand by the end of the year could be around two million vehicles, and nearly 10 million globally by the end of the year as full production has yet to resume.
Lack of supply also has driven price gains in new and used vehicles in most major markets. According to Black Book, an automotive valuation website that tracks vehicle data, used vehicle retail prices in the US are 25% higher than they were at the start of the year. Motor vehicle costs are an important driver in increases in the US Producer Price Index, which translate into higher consumer prices. “At a not-immaterial share of most CPI baskets (7% in the US, for example), these dynamics will continue to impact inflation until bottlenecks are unwound,” the authors say.
“While the chip shortage’s inflationary impact is expected to prove transitory, we note that ‘transitory’ in this case will likely mean several quarters.” The demand-supply balance, according to the report, should start to normalize in the first half of 2022, with semiconductor-related price pressures peaking before mid-2022, although that forecast is subject to considerable uncertainties.
Read the full Scotiabank Economics report on the global semiconductor shortage here.