The dearth of chips inconveniencing the global supply chain is putting pressure on the EV industry as both automakers and infrastructure operators struggle to stay on track
In response to the deepening microchip shortages plaguing the makers of electronics — from computers to toothbrushes — the electric vehicle industry is now warning that another year of anticipated supply deficits could throw not only manufacturing, but infrastructure rollouts into a period of contraction.
The chip shortage comes at a sensitive time for the EV industry, which has been building consistent momentum worldwide. Now, with delays possibly stretching into 12 or more months, it seems that steady progress could be in jeopardy.
But it’s not just the automakers suffering. Charging infrastructure companies are also sounding the alarm as their units, too, are dependent on chip technology and keeping the momentum going with rolling out public charging options is a national priority.
In a statement to Electric Autonomy Canada, ChargePoint, an international operator of EV charging stations, says they have, largely, escaped significant impact to their supply chain thus far, but “we continue to work with our supplier partners to prepare for any potential impacts by ordering and holding inventory as needed, and will continue to evaluate the longer term forecast and adjust going forward.”
Auto Industry Hit the Hardest
So, how did we get here? The short answer is the COVID-19 pandemic. With more people staying at home instead of commuting or doing other activities during the global lockdown, the strong and consistent demand for consumer electronics has reduced microchip supply. Combine that with more and more types of new vehicles needing advanced technology, and demand has exceeded supply even further.
This is especially true in the EV world with chips being integrated into almost every part of the vehicles and accompanying charging infrastructure. Microchips are needed for vehicle computer management, driver-assist mechanisms, and in the case of electric vehicles, the battery.
Ford recently announced that chip shortages are expected to cause the company over $2.5 billion in profits, with General Motors echoing a similar $2 billion hit. And reporting on Tesla’s Q1 earnings call last week, Electrek noted even Elon Musk admits Tesla is feeling the bite from the chip shortage.
“Our biggest challenge is supply chain, especially microcontroller chips. Never seen anything like it. Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale,” said Musk on the call.
While conventional vehicle manufacturers can revert to old style designs just to put cars on the market, it isn’t viable for most of the EV industry. In a letter to shareholders Tesla noted they managed to avoid some of the chip shortage fallout by pivoting to “microcontrollers”, but they appear to be an anomaly in the industry.
Carter Li, CEO at SWTCH Energy revealed in an interview with Electric Autonomy Canada that “Chip shortages have dramatically slowed our 2021 project rollouts as EVSE [Electric Vehicle Supply Equipment] manufacturers have delayed our shipments by over three months and have increased lead times to over six-to-twelve months.”
Six-to-twelve months is a long time to be delayed, especially when some governments are looking to subsidize consumer purchases of electric vehicles. If the infrastructure to power those vehicles isn’t built, then consumers will have fewer available stops to power their vehicles on longer trips. This could increase consumer hesitancy, knocking the supply and demand on the vehicle side off-kilter.
While companies such as Intel are planning to build new plants in North America and possibly Europe to increase the amount of chips available, it will be two to three years before production from those facilities reach market, improve supply, and work towards a balance.
Not everyone is suffering
One of the most grating elements of the chip shortage for customers to reckon with is that while they are now competing in the marketplace Hunger Games-style to snap up any chips available at any price, the microchip makers themselves are raking in record profits.
TrendForce, a market intelligence service, reviewed and compared the quarterly reports for the world’s 10 largest chip manufacturing companies. Their research found a combined total revenue for the group was an eyewatering $22.75 billion in the first quarter of 2021. That revenue is expected to climb a further one-to-three per cent in Q2, according to TrendForce.
Some chip manufacturers are starting to raise their prices between 10 – 20 per cent, citing more expensive materials and specifically the cost of wafers — a thin semiconductor — and circuit boards. That raised cost will eventually trickle down to customers. Tesla hiked the price of the standard Model 3 — this time another $2,500 — specifically citing chip shortages as the reason. “Prices increasing due to major supply chain price pressure industry-wide,” tweeted Musk.
And on the charging infrastructure side companies are troubleshooting the shortage on the fly, including changing the components in their products or leaning on their vertical integration model to see them through the worst of the shortage.
“Chips are important to our stations,” says Nathan Yang, chief product officer at AddÉnergie, an operator of EV charging networks, in response to questions from Electric Autonomy Canada. “Our supply chain team is closely monitoring chip supply and, as a vertically integrated company, we are able to make strategic decisions about how much supply of any inputs we keep on hand, and even to modify products if long term shortages are expected.”
Will the market balance?
German semiconductor maker Infineon, which suffered setbacks at its Austin plant due to the February power outages in Texas, admitted that 2022 would be a difficult timeline to achieve a supply and demand balance, but 2023 would more likely see normal quantities for the microchip supply.
In the near-term, there will be delays in manufacturing and product delivery of microchips that will hinder the growth of the EV industry. But as plants return to full operation and new facilities are built around the world, a return to balance can be expected. Most chip-dependent companies are preparing for the worst though and operating on a years-not-months planning mentality.