The squeeze on chip supplies will take “years” to resolve, Jaguar Land Rover CEO Thierry Bolloré has warned, even as many manufacturers, including JLR, report supply is gradually returning.
JLR has suffered more than most from the shortage of the electronic controllers and has spent much of the crisis working to forge direct links with the chip suppliers, rather than keep the responsibility with the tier one supply into whose part the chip is embedded.
“We should not forget that the supply of chips is really a crisis in our sector,” Bolloré told investors and analysts on a third-quarter earnings call, adding that he had discussed the issue with other industry CEOs. “We can see improvements but it’s going to be not months but years before we come back to a situation [that] is much more normal.”
JLR’s problem is more acute in that it’s a smaller customer for chip suppliers compared with the bigger automotive groups, giving it less leverage. In September, one supplier even broke their agreement with the company, leaving it short. “That did dramatically impact September production,” chief financial officer Adrian Mardell said on the call, cutting the company’s sales predictions.
JLR has since re-signed the supplier but in a pie chart showing the sources of the £430 million inflationary increases in the six months to the end of September, around a third were attributed to the rising cost of semiconductors, just below that of soaring commodity prices and above increasing energy bills.
Automotive accounted for around 9% of the semiconductor industry in 2021, according to analyst company Gartner, worth around $51.5 billion (£45.2bn). However, it forecasts that will rise to $117bn (£103bn) by 2030, with electric vehicles, hybrids and advanced driving systems accounting for much of the increase. Gartner estimates the average cost of all the various chips needed will rise from around $500 (£440) per car to $1200 (£1055) by 2030.
Not all chips are super-sophisticated, but that doesn’t matter if you’re short of them. It still throws out your production plans. So much so that global production volumes are off about four million this year through chip shortages alone, according to AutoForecast Solutions. The situation is improving and will get better still if China does what’s been hinted at and eases its tight Covid restrictions.
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