Global chip crunch hits local auto sector

The shortage threatens to defeat govt’s objective to spur vehicle sales through the sales tax incentives, ending in June


CARMAKERS in Malaysia feel the global shortage of semiconductor chips will continue to impact domestic production for at least the next two to three months at a time of brisk sales driven by the Sales and Services Tax (SST) exemption.

Industry players who spoke to The Malaysian Reserve (TMR) indicated the chip crunch could worsen order backlogs, which are already stretched to four months waiting time for certain models.

“Some carmakers are facing a two-to three-month delay in chip supply to be used in certain models. If they cannot get the chip packs from overseas, they cannot assemble vehicles. It will affect production and sales volume,” Malaysian Automotive Association president Datuk Aishah Ahmad (picture) told TMR.

Aishah said the short supply in chips would hit the high-end cars‘ production harder as such makes’ electronic systems are more sophisticated.

She said auto manufacturers are dealing with chipmakers to sort out the supply chain crisis.

Local carmakers are sourcing almost 100% of their chips from overseas suppliers in Europe and Japan, in particular.

The global chip shortage has also impacted production of electronics and tech items from TVs, desktops, laptops to iPhones and PlayStation 5.

The Covid-19 pandemic has pushed demand for such goods as people worldwide are put under movement restrictions with work-from-home becoming a norm.

The automotive industry is facing the brunt of the chip shortage problem. Cars, nowadays, are built with connected mobility and autonomous features which means electronic chips are a crucial component.

“Chipmakers can easily address shortages on a certain type of chips by increasing the manufacturing capacity,” an auto industry player said.

“But other types are more complicated, and it would take some time for them to resolve.”

The source said new automotive models with advanced driver assistance systems, such as adaptive cruise control, lane departure warning systems and parking assistance, need more electronic chips.

At present, the source said the domestic auto industry has about two to four months of backlog orders, depending on models.

He said the industry’s average outstanding order could be between 100,000 and 200,000 units now, but the underlying global chip shortage issue could intensify the bottlenecks and timely deliveries.

The global chip crunch issue threatens to defeat the government’s objective to spur vehicle sales through the sales tax incentives, ending on June 30.

“The main priority for the government at the moment is to maintain the momentum of the total industry volume recovery seen in 2020, as we try to bounce back from the initial shocks from the onset of the Covid-19 pandemic.

“This chip shortage needs to be taken into account should it dampen current government efforts such as the SST exemption,” Malaysia Automotive, Robotics and IoT Institute (MARii) CEO Datuk Madani Sahari told TMR.

He said the best course of actions are to utilise data-driven decision-making in planning production, as well as constant communication with customers and value chains to ensure risks are mitigated.

He said MARii, the International Trade and Industry Ministry and its agencies are looking towards new strategies to further mitigate problems due to the shortage.

These include government-to-government engagement, government-to-business engagement and facilitating the use of big data management technologies in production planning.

Perusahaan Otomobil Kedua Sdn Bhd (Perodua), the market share leader, saw its sales volume dip by 16.5% month-on-month to 20,399 units in April, mainly due to the semiconductor shortage.

“The chip shortage is our top priority at present and we are deploying all our resources to deal with it, including working closely with the government and our business partners for viable solutions,” Perodua president and CEO Datuk Zainal Abidin Ahmad said in a statement recently.

Meanwhile, Proton Edar Sdn Bhd CEO Roslan Abdullah recently said the carmaker is monitoring the global chip supply shortage with its vendors and supply chain.

He said the carmaker’s current chip supply could sustain until the next two to three months.

Globally, Stellantis NV — the carmaker formed by the merger of Italian-American Fiat Chrysler and France’s PSA — warned the global semiconductor shortage will impact production harder in the second quarter.

The world’s fourth-largest automaker anticipated the disruption to leak into 2022.

Europe’s largest automaker, Volkswagen AG, warned in December the chip shortage would disrupt vehicle production, estimating output of over 100,000 cars could be at risk.

Chipmakers, meanwhile, are investing fresh money to meet growing demand from various industries.

US chipmaker Intel Corp CEO Pat Gelsinger told The Washington Post recently that it would take a couple of years to build capacity.

Intel announced plans to invest US$20 billion (RM82.6 billion) in two new chip factories in Arizona and revamp its manufacturing strategy.

Taiwan Semiconductor Manufacturing Co Ltd planned to spend US$100 billion over the next three years to expand its capacity.

Samsung Electronics Co Ltd was also considering building a new US$17 billion chip plant in several sites in the US.