We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

As a global leader, we deliver strategic advice and solutions, including capital raising, risk management, and trade finance services to corporations, institutions and governments.

Learn more about our solutions:

  

Serving the world's largest corporate clients and institutional investors, we support the entire investment cycle with market-leading research, analytics, execution and investor services.

Learn more about our solutions:

  

We are a leader in investment management, dedicating to creating a strategic advantage for institutions by connecting clients with J.P. Morgan investment professionals globally.

Learn more about our solutions:

    

Our financial advisors create solutions addressing strategic investment approaches, professional portfolio management and a broad range of wealth management services.

Learn more about our solutions:

    

Leverages cutting-edge technologies and innovative tools to bring clients industry-leading analysis and investment advice.

Learn more:

    

The latest news and announcements.

Learn more:

    

For company information and brand assets for editorial use.

Learn more:

    

The latest news and announcements.

Learn more:

    

In a fast-moving and increasingly complex global economy, our success depends on how faithfully we adhere to our core principles: delivering exceptional client service; acting with integrity and responsibility; and supporting the growth of our employees.

Learn more:

    

J.P. Morgan is a global leader in financial services, offering solutions to the world's most important corporations, governments and institutions in more than 100 countries. As announced in early 2018, JPMorgan Chase will deploy $1.75 billion in philanthropic capital around the world by 2023. We also lead volunteer service activities for employees in local communities by utilizing our many resources, including those that stem from access to capital, economies of scale, global reach and expertise.

Learn more:

    

With over 50,000 technologists across 21 Global Technology Centers, globally, we design, build and deploy technology that enable solutions that are transforming the financial services industry and beyond.

Learn more:

    

Technology Banner

For general inquiries regarding JPMorgan Chase & Co. or other lines of business, please call +1 212 270 6000.

Learn more:

      

For general inquiries regarding JPMorgan Chase & Co. or other lines of business, please call +1 212 270 6000.

Learn more:

      

Updated August 11, 2022

Supply chain issues are widespread and prevalent, with the ongoing chip shortage causing reverberations across many sectors. Among those most affected is the auto industry, where chip shortages are holding up production and denting sales.

Semiconductors or chips are a crucial element in the manufacturing of consumer electronics such as smartphones, cameras and computers. In cars, they are needed for everything from entertainment systems to power steering. For the auto industry, the supply crunch and shortage of chips has forced car manufacturers to cut production and delivery targets and has led to a number of profit warnings.

In this supply chain spotlight, J.P. Morgan Research explores how the current chip shortage is impacting automakers, the “perfect storm” that is causing it and what the path forward might look like for the auto and auto parts industries.

 

Why Is There a Chip Shortage?

In the simplest terms, the current chip shortage is due to strong demand and no supply. This goes back to COVID-19 lockdowns in the second quarter of 2020, when demand for work-from-home technology increased exponentially and automakers found themselves competing for the semiconductor capacity located in Asian foundries.

Adding to the problem, downstream operations in South Asia were adversely impacted by the COVID-19 Delta variant, creating further bottlenecks in the supply chain. Malaysia in particular performs many “back-end” operations such as chip packaging and testing, which is more labor intensive than wafer fabrication processes, so activity is more easily affected by public health measures.

At the beginning of the pandemic, car companies cancelled orders, but as production ramped up again towards the end of 2020, there was no semiconductor supply available. This was compounded by demand increases, particularly at the higher end of the autos market, as low interest rates were aiding affordability.

While the COVID-19 pandemic was the initial catalyst for the chip shortage, structural factors are also part of the picture. The auto industry is changing, with a major shift towards automation and electric vehicles. These require yet more chips, causing further strain on an already stretched industry.

 

When Will the Chip Shortage End?

More chips will become available in the second half of 2022 and the shortage is nearing the end according to J.P. Morgan Research. However, available chips may not be the right type to satisfy all demand. Volkswagen believes that semiconductor supply is unlikely to meet auto industry demand until 2024.

 

“We’re going to get a lot more semiconductor capacity in the second half of 2022 – we’re nearing the end of the supply crunch. However, capacity still needs to be qualified for use in the automotive industry. Can the right matching occur between available supply and correct qualification? This is the difficulty that remains.”

Sandeep Deshpande, Head of European Technology Research, J.P. Morgan

Currently, capacity is being freed up due to weakness in some end markets, particularly PCs, smartphones and consumer electronics, where sales have been falling since March 2022. Foundries in Taiwan are beginning to reallocate some of this capacity to the automobile and industrial end markets, which lost out to other sectors during the COVID-19 pandemic. However, autos generally require older chips, which are fundamentally different to those used in PCs and smartphones.

“We’re going to get a lot more semiconductor capacity in the second half of 2022 – we’re nearing the end of the supply crunch” said Sandeep Deshpande, Head of European Technology Research. “However, capacity still needs to be qualified for use in the automotive industry. Can the right matching occur between available supply and correct qualification? This is the difficulty that remains. If there wasn’t this issue, I would be of the opinion that things could be normal by the end of the year.”

 

The Semiconductor Shortage and its Impact on Auto Supply Chains

“The U.S. market, like other regions, has been characterized by robust pricing power across OEMs, underpinned by low inventory levels, strong underlying demand and tight supply of semiconductors.”

Jose Asumendi, Head of European Automotive Research, J.P. Morgan

2022 has so far been marked by production disruptions across many fronts. In addition to existing semiconductor shortages, the Russia-Ukraine conflict and COVID-19 outbreaks in China have affected global supply chains and auto production.

“The U.S. market, like other regions, has been characterized by robust pricing power across original equipment manufacturers (OEMs),” said Jose Asumendi, Head of European Automotive Research at J.P. Morgan. “This has been underpinned by low inventory levels, strong underlying demand and tight supply of semiconductors due to strained supply chains.” 

In June 2022, the U.S. seasonally adjusted annual rate (SAAR) for light vehicle sales came in at 13.22 million, which was up 3% month-over-month but down 14% year-over-year, reflecting the industry’s difficulties. Industry volumes were lower for the 11th consecutive month, down 12% year-over-year. However, volumes were up 2.6% month-over-month. 

On the demand side, incentives have fallen to the lowest levels since January 2013. This is indicative of high consumer demand in the auto end market, as retailers do not need to offer cash incentives to attract consumers.

 

Can the Auto Industry Overcome the Chip Shortage?

The second half of 2022 will start to reflect supply chain recovery according to J.P. Morgan Research. Global car production is forecasted to be up 7% in the 2023 fiscal year, with sequential improvements expected from the second half of 2022 as the chip shortage gradually improves.

Global light vehicle production is returning to pre-pandemic levels

Bar chart showing global light vehicle production fell in FY20, but is expected to improve through to FY25.

Global light vehicle production tumbled in FY20 at the onset of the COVID-19 pandemic. Sequential improvement is expected in the second half of 2022 and production is predicted to keep rising through to FY25.

 

“We are noticing that major OEMs are expanding production across plants,” said Asumendi, with car makers announcing plans to hire more staff and invest more in their manufacturing facilities. Stellantis Vigo plans to hire more than 1,400 workers to activate two new shifts this fall. The company also announced it will produce the latest Fiat Doblo in Spain and is expanding production in its Spanish plants. Volkswagen is increasing production in Germany and has invested 1 billion euros ($1.03 billion) in converting its plant in Emden to manufacture electric cars. Output is also expected to increase at its electric vehicle (EV) factory in Zwickau after production was interrupted when Russia invaded Ukraine.

The long-term outlook for the sector is positive according to Asumendi. “We are starting to see meaningful signals of production stabilization in Europe as well as improvement signals in China,” he added.

Related Insights

Energy Supply Crunch

Energy Supply Crunch

What’s Next for Oil and Gas Prices? As temperatures drop, explore energy prices for the rest of the year.

 

 

Housing Affordability and COVID-19

Housing Affordability and COVID-19

Is housing affordability the next post-pandemic crisis?

 

 

Did the Airline Industry Recover Yet?

Did the Airline Industry Recover Yet?

U.S. consumers want to fly, but key questions remain.

 

 

This communication is provided for information purposes only. Please read J.P. Morgan research reports related to its contents for more information, including important disclosures. JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively, J.P. Morgan) normally make a market and trade as principal in securities, other financial products and other asset classes that may be discussed in this communication.

This communication has been prepared based upon information, including market prices, data and other information, from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan. Copyright 2022 JPMorgan Chase & Co. All rights reserved.

MSCI: The MSCI sourced information is the exclusive property of MSCI. Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an ‘as is’ basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.