How the Chip Crisis Happened and What Car Manufacturers Are Doing About It


The shortage of computer chips that has driven up car prices could lead to fundamental changes in the way vehicles are developed, but the availability of vital components may not return to pre-COVID levels until 2024, experts say .

According to analyst Auto Forecast Solutions, the shortage has reduced global vehicle production by 10 million units in 2021, with 1 million more at risk this year.

What makes one computer chip different from another? Why do automakers keep building more vehicles while half-finished cars and trucks are waiting for chips?

Because the chips aren’t interchangeable, at least a lot of them aren’t. The chip GM needs to control seat heaters, for example, is different from the one that oversees the power window, and nothing like the chips responsible for engine controls or security systems either.

“Each chip’s hardware and software are not interchangeable,” said IHS Markit principal analyst Phil Amsrud. “You can’t trade one for the other. They are not compatible.

Some of the reasons are inherent in chip engineering, others have their roots in automotive development and purchasing. Both are likely to change in response to a crisis that has cost automakers millions of production units and sent consumer prices soaring.

1,200 required per vehicle

A modern automotive chip is actually a miniature computer or system-on-chip (SOC). They vary in size, computing power, and factors as basic as the number of physical pins they need to plug into the system.

“Trying to take a chip out of your phone and put it in your navigation system will get you nowhere,” said Wards Intelligence analyst Bob Gritzinger.

The average modern vehicle can have 1,200 different semiconductor chips, ranging from nearly generic chips that cost a fraction of a penny to powerful SOCs that run the vehicle’s entertainment system and cost $50, Amsrud said.

“Every controller in a car is basically a black box,” Amsrud said. “What they do varies widely. The components to accomplish it do that too. You can’t take a driver-assist SOC and put it in the motor controller. The software is completely different, and so are the connectors, materials and physical configuration.

In response to the chip shortage, Ford CEO Jim Farley told investors the company would hire engineers to develop SOCs in-house and work with GlobalFoundries to ensure a stable supply.

“They are the property of a supplier or a car manufacturer. You cannot exchange one for the other if there is a shortage.

Also, using a chip for a job other than what it was designed for would require extensive testing.

“We get angry when our cell phone drops a call, but no one dies when that happens,” Amsrud said. “Automakers need to ensure that the outcome is safe in the event of a part failure. We don’t want the response to this issue to reduce vehicle safety and reliability.

How we got here

There were other contributors besides COVID-19. A fire at a major factory in Asia and a devastating ice storm in Texas also reduced production, Amsrud said. This has exacerbated disease outbreaks and medical precautions that have halted everything from final chip production to raw materials.

“It was the stress test that showed how fragile the whole system was,” Amsrud said. “Car manufacturers specify chips suitable for a specific application. Software and hardware are not interchangeable.

This approach reduced costs and increased efficiency, before the weakest link broke.

The first automotive micro control units, or MCUs, were motor controllers in the 1970s. As technology advanced, microcontrollers were added to operate other systems. The duplication was partly because it was easier and faster to add a control module for a new function than to redesign one that was already working for other purposes.

“The number of chips has proliferated,” said SAE International editorial director Bill Visnic.

“It got crazy. There were chipsets everywhere.

There weren’t many downsides to this until the current crisis made interchangeability attractive. Today, some automakers and suppliers are working on more flexible SOCs that can perform different tasks.

“You can’t snap your fingers and do that,” Visnic said. “Parts are specified and contracts are signed years in advance.”

Amsrud expects longer-term supply contracts for chips to become common, reducing automakers’ ability to cancel short-term orders but ensuring a more stable supply. Some automakers’ current chip problems are amplified by fears that sales could slump and cancel orders at the start of the pandemic. When that didn’t happen, chipmakers told them they had lost their place: consumer electronics and other industries had clawed back manufacturing capacity that automobiles had given up.

In response, some automakers are forming strategic alliances with chipmakers. Ford recently struck a deal with chipmaker GlobalFoundries to develop and build advanced chips — possibly in the United States, depending on government policies. Ford is also hiring engineers to design more SOCs in-house.

“It’s a culture change at Ford,” CEO Jim Farley told investors this month.


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