Since the start of the worldwide semiconductor shortage in early 2020, it has affected over 169 industries. However, few were impacted more than the automotive industry. Modern vehicles, with their concentrated infotainment systems, driver-assist systems, and complex engine management computers, rely on hundreds, and sometimes thousands, of semiconductor chips.
This sudden and major disruption to the supply chain was not only an operational challenge for automobile manufacturers, but it has also shifted the competitive landscape, altered automotive production rankings, and produced long-term effects that we are all trying to grapple with today.
During the crisis, platforms like Karkiosk have been helpful for buyers and sellers to illustrate a rapidly changing market. They’ll provide transparent listings, price evaluation tools that can be used for both dealers and private sellers, as well as other market and selling resources—all to help buyers and sellers think through issues like low inventory, pricing inflation, and selling opportunities in changing times. It has served as a value-added tool, simplifying the process for customers looking for a car for sale by owner or to buy or sell in uncertain times.
The Perfect Storm: Background of the Crisis
The shortage of semiconductors was not caused by a single event, but rather a perfect storm of related causes. COVID-19 accounted for the majority of the culpability. As the world locked down from the pandemic, auto manufacturers anticipated limited sales and began to cancel chip orders.
At the same time, demand for consumer electronics like laptops, gaming consoles, and webcams boomed as consumers began working or learning from home. When consumer demand bounced back much quicker than automakers anticipated, they were at the back of the line, while many turned to private car sales to meet their needs. Chip manufacturers and suppliers had already shifted production capacity to the booming electronics industry, exacerbated by:
- Natural Disasters: A severe winter storm in Texas and a drought in Taiwan, the largest manufacturer of semiconductors in the world, resulted in major production interruptions at all key facilities.
- Geopolitics: Trade disputes between the US and China resulted in sanctions on the largest Chinese chip manufacturers, and the Ukraine conflict disrupted the supply of neon gas, an essential gas for chip manufacturing.
- Logistics: Globally, shipping was at unprecedented congestion. There was a shortage of containers causing delays in the transport of finished chips and raw materials.
The collision of high demand and crippled supply galvanized a crisis-like situation that the auto industry still feels pain from.
Early Impact: Production Halting and New Prices
In 2021, auto manufacturers made 7.7 million fewer cars, at an estimated $210 billion in revenue loss. Major brands halted or reduced production, resulting in virtually empty dealership lots. The price of new vehicles jumped significantly. From 2021 to 2022, the price of a new car increased by about 12%. The price jumped as discounts disappeared, and dealers did not have the supply to use incentives.
The impact was far more noticeable in the used car market. With new cars often not available, buyers turned to the used vehicle market—which increased activity (and prices) in what is called a “seller’s market.” At the height of the shortage, used vehicle prices skyrocketed by as much as 45%.
Restructuring the Order: A New Automotive Ranking
The circumstantial shortages affected automotive manufacturers in different ways and impacted the ranking for overall production on a global basis.
In regard to production, the winners were manufacturers who were more nimble and had stronger supply chain relationships, or those who produced chips. Some examples include Chinese brands such as BYD (which produces its own chips), Geely, and SAIC, with BYD overtaking Tesla in BEV sales globally in 2024. When selling your car privately, consider how these market trends reflect the changing automotive landscape.
Key factors contributing to their success include:
- In-house chip production: BYD’s ability to manufacture its own semiconductors reduced dependency on external suppliers and ensured a steady supply.
- Government incentives: Chinese manufacturers benefited from strong government policies promoting EV production and innovation.
- Diversified EV offerings: Companies like Geely and SAIC provided a wide range of EV models, catering to various consumer needs and preferences.
- Strategic partnerships: Collaborations with technology firms and battery suppliers strengthened their market position.
Legacy manufacturers in Japan, Europe, and the US fell behind competitors, especially those using just-in-time supply strategies, making them vulnerable. While Honda began recovery with strong EV launches, much ground was already lost. Consider adapting to these changing market dynamics by exploring private vehicle sales options.
Long-Term Change in Strategic Thinking and the Rise of the EV Product
The automotive crisis has caused an intense strategic recalibration across the auto industry. The auto industry accepts that semiconductors can no longer be handled as a “commodity.” Several long-term consequences will all result from the semiconductor industry’s convergence and reconciliation:
- Vertical Integration: Automakers like Tesla, Hyundai, and Volkswagen are developing their own proprietary chips. Reducing reliance on vendors makes it easier to guarantee chip supply and optimize vehicle functions.
- Direct Relationship with Suppliers: Automakers are creating direct relationships with suppliers to secure long-term chip availability.
- Diversified Supply Chains: Automakers are enhancing and diversifying their supplier networks to reduce risks.
- Acceleration in EV Adoption: The chip crisis has deepened the reliance on electronics in vehicles, particularly EVs, which require more computing power for battery management, autonomous driving, and connected services.
Has the Avalanche Melted? Bottlenecks with Stronger Consequences?
While the 2020–2023 vehicle semiconductor shortage appears to be largely behind us, analysts caution that supply constraints may reappear as soon as late 2025.
Reasons for Continued Concern:
- New Chip Focus: Most new capital investment in advanced chip production is targeted at small CPU chips for AI, further restricting auto-grade chips (40nm and above).
- Increasing Demand: Rising sales of consumer electronics and new EV launches will continue to impact chip capacity.
- Underinvestment in Mature Chips: Auto manufacturers remain at risk due to limited investment in mature chip production lines.
- Geopolitical Risks: Ongoing geopolitical tensions and export restrictions on critical materials could further disrupt semiconductor supply chains.
- Long Lead Times: The time required to build and ramp up new semiconductor fabrication plants remains a significant bottleneck, often taking several years.
Automakers are racing to build diversified supply chains. Lessons learned from these supply and demand consequences will shape vehicle production and supply channels over the long term.
