The semiconductor chip shortage is a real issue plaguing the global automotive industry. Over-dependence for these chips on a handful of countries is the prime reason that could potentially dismantle the entire industry.
China could potentially make the entire US auto market collapse by leveraging the semiconductor chip shortage issue. We all know how terrible the situation has been in the last couple of years. This is one of the biggest aftermaths of the pandemic. The world primarily relies on countries like Taiwan, China and the US for getting semiconductor chips that are used in almost all electronic devices in the world including smartphones, laptops, consumer electronics and electric cars. While all these industries are critical, we concern ourselves with the latter. The video by Epic Economist explains these aspects in depth.
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China and US War on Chip Shortage
A regular modern car uses over 1,500 semiconductor chips for controlling various operations including the HVAC, power windows, infotainment and others. Modern cars rely heavily on electronic functions as mechanical controls almost cease to exist. Therefore, the entire future of vehicles depends on who controls the manufacturing and technology pertaining to semiconductor chips. At the moment, Taiwan and China are the prime manufacturers.
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As the tension between the USA and China intensifies, the sanctions have caused the auto industry in the US to lose a lot of revenue in 2022. The sales had to be halted as the semiconductor chips were absent. Carmakers had to wait until the situation got better before starting to manufacture cars again. In addition, China was reported to hoard these chips and raise the prices multiple times to gain huge profits from this situation. That has given rise to desperate carmakers having the head to the underground market to buy these chips.
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While the US auto market witnessed one of its worst years in the last decade in terms of sales, China had yet another bumper year as more EV companies emerge and the sales of new cars surged. Interestingly, many international carmakers including Tesla manufacture cars in China to export them to various international markets. If the tension between the two great economies continues, the entire automobile industry threatens to face a collapse. We shall keep an eye out for the developments in this space.
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