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Chip shortage casts shadow on China’s auto industry recovery

Commodities9 minutes ago (Apr 18, 2021 07:05PM ET)

(C) Reuters. A Volkswagen ID.6 X is displayed ahead of the Shanghai Auto Show, in Shanghai

By Norihiko Shirouzu and Yilei Sun

SHANGHAI (Reuters) – Auto industry executives are rattled by a global shortage of semiconductors which is hitting production in China, after hoping the world’s biggest car market could spearhead global recovery in the sector.

Automakers around the world have had to adjust assembly lines due to the shortages, caused by manufacturing delays that some semiconductor makers blame on a faster-than expected recovery from the coronavirus pandemic.

Volkswagen AG (OTC:VWAGY), China’s biggest foreign automaker which wants to sell over four million vehicles in the country, said the impact of the shortage remains unabated in the second quarter this year.

Stephan Woellenstein, Volkswagen (DE:VOWG_p)’s China chief, told reporters on Sunday it was hard to gauge how much production Volkswagen might lose week to week or even month to month because of the chip shortage.

“It’s really like fire-fighting… In some cases, we have switched to another chip so we changed suppliers,” he said, ahead of the Shanghai auto show which opens on Monday.

China, where over 25 million vehicles were sold last year, become a ray of hope for automakers, including Volkswagen and General Motors (NYSE:GM), as the global auto industry was hit hard by the pandemic.

However, China is also where news of the auto chip shortage first emerged last year. The shortage was worsened by a fire in Renesas Electronics’ chip factory in Japan in March.

In 2019, automotive groups accounted for roughly a tenth of the $429 billion semiconductor market, according to McKinsey, with NXP (NASDAQ:NXPI) Semiconductor, Germany’s Infineon (OTC:IFNNY) and Renesas among key suppliers to the sector.

Automakers, including Nissan (OTC:NSANY) Motor, Ford Motor (NYSE:F) and Nio (NYSE:NIO) Inc said they cut production due to the chip supply shortage.

Li Shaohua, senior official at China Association of Automobile Manufacturers, said chip supply shortage hit auto production by 5% to 8% in the first two months this year and expects the impact to ease from the third quarter of this year.

As a result, China Automobile Dealers Association, said it expects car inventory to continue to drop in China as the chip shortage hits overall auto production. Supply of some car models might not be able to meet demand, it said.

Chip shortage casts shadow on China’s auto industry recovery

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