Semiconductor chip shortage continues to hold back automotive industry

In what has been a challenging period for the automotive industry, Toyota has warned that its profits may fall by a fifth over 2022 due to increasing energy costs and raw material prices following the various supply chain disruptions of the past two years. Paul Kirkpatrick, partner at Browne Jacobson, has sounded a cautionary note on how the shortage of semiconductor chips will impact the automotive industry and how he expects the shotrage to effect all parts of the manufacturing industry. “The well-documented shortage of semiconductor chips has had a significant impact on the automotive industry. “Projections that suggest that the shortage may be resolved in the second half of this year seem optimistic, and may be at odds with previous market intelligence, which anticipates that the shortage would continue throughout the course of this year, and possibly even into next year. Kirkpatrick further highlighted the challenges facing the industry, saying “Figures published by the Society of Motor Manufacturers and Traders (SMMT) as recently as 5th May 2022, demonstrate that the impact of that shortage is continuing to be felt in the market, as new car sales fell by -15.8% in April. The principal reason for this significant drop was thought to be the ongoing global supply chain shortage, and in particular the limited availability of semiconductors, which is continuing to significantly restrict the production of new vehicles. In light of the ongoing supply chain difficulties within the industry amongst other factors, the SMMT decided to lower its 2022 market outlook for new cars expected to be registered from 1.89mn to 1.72mn.” Kirkpatrick believes that even this reduced outlook might prove to be optimistic, revealing that although he expected that the severity of the semiconductor shortages might ease later in the year, he questioned whether those challenges will be resolved in the very near future. “In those circumstances, whilst we also expect  If this does prove to be the case though, this will certainly be welcomed by the industry as a whole. “To sound one further note of caution - even should the shortage of semiconductors begin to ease throughout the second half of this year, a range of wider market factors (which to date have been somewhat overshadowed by the shortage of semiconductors) will continue to make the market a challenging environment for businesses.  The rising cost of energy, rapidly climbing inflation, a wider supply chain and raw material crisis, and the uncertainty surrounding the impact of the war in Ukraine, will all continue to play a part." However, Kirkpatrick did find some positivity for the industry, admitting “Nevertheless, the automotive industry has proven to be a greatly resilient place in the last few years.”