US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

It’s Not a Game: Chip Shortages Stall Auto Industry Recovery

The global auto industry, like most manufacturing sectors, was hit hard in the early months of the pandemic in 2020, with plants closing and sales plummeting. However, sales picked up faster than expected, and as 2021 approached, the promise of new vaccines and global economic improvement provided hope that industry growth would accelerate.

However, auto producers worldwide are now having to slow or stop production again due to a shortage of computer chips, which could have a ripple effect throughout the automotive supply chain.

Motor vehicles are increasingly driven by electronics, but auto production is just one outlet for semiconductor chip producers, whose businesses are increasingly driven by consumer electronics and the dispersion of smart technology. As auto production dropped dramatically in early 2020, chip suppliers switched their focus to producing chips used in gaming systems, smart phones, laptops, and other products high in demand by consumers forced to stay at home. When auto producers ramped up output again, chipmakers began to have trouble meeting demand, creating a challenge that is expected to continue well into 2021.

Will a shortage of chips halt the global auto industry recovery? According to Thomas Bowne, Chief Economist at The Freedonia Group, the impact on total annual output expected for 2021 will likely be negligible. “The market allocation by price mechanism is a wonderful thing. The ‘shortage’ of chips will result in motor vehicle manufacturers perhaps having to spend more than they budgeted for motor vehicle production in the short term. But as global motor vehicle demand bounces back in 2021 and production increases accordingly, chip manufacturers, seeing a good opportunity for higher profits, will likely switch course to meet that rising demand in the motor vehicle segment.”

Healthy motor vehicle production is essential to the outlook for growth in many other industries worldwide, including those that produce components such as batteries and filters, as well as coatings, adhesives and even items like professional power tools used on manufacturing lines. Automotive applications account for a large share of demand for many of these products. For example, the industry accounts for over a third of all demand globally for both batteries and filters. 

For more information and a discussion of market opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research related to the auto industry, including Global Batteries, Global Filters, Paint & Coatings, Global Thermoplastic Elastomers, Global Polyolefin Elastomers, Global Adhesives & Sealants, and Power Tools (an update of Global Power Tools is coming soon). Freedonia Focus has also recently published Electronic Components: United States and an update of the Semiconductors: United States report is coming soon. Freedonia Custom Research is available for questions requiring tailored market intelligence.

  Automotive & Transport      Covid-19      Machinery & Equipment