Ongoing Semiconductor Shortage Has Potential to Slow Electric Vehicle Adoption

The global semiconductor shortage has had a massive impact on the automotive industry, forcing automakers to halt the production of millions of cars. Last May, AlixPartners estimated that automakers could end up losing around $210 billion in revenue in 2021 amid halted production.

And the chip shortage hasn’t just affected traditional cars; the nascent electric vehicle industry, which consumes a lot more semiconductor chips compared to fossil-fuel vehicles, may also see slowed growth in the next few years if the shortage drags on.

According to management consultancy firm P3 Group, electric vehicles require almost twice as many semiconductors as fossil-fuel vehicles, with the average battery electric vehicle (BEV) requiring 1,300 semiconductors compared to 600 for conventional vehicles. A significant portion of these chips is located in the powertrain, the German consultancy agency notes.

The agency’s calculations show that while 2% of total production costs would go to semiconductors in an internal combustion engine (ICE) back in 2017, EV manufacturers will have to dedicate 6% of production costs to semiconductors in 2030. The average electric car requires semiconductor chips in the motor, inverter, charger, DC/AC and central processor.

Don’t forget about the infotainment system and the digital control unit. For electric cars equipped with autonomous driving technology, chips are crucial for the functioning of cameras, ultrasonic sensors, several radars, braking by wire and steering.

P3 Group’s managing director Markus Hackmann says that the consultancy firm realized the significant role semiconductors would play in the EV sector four years ago, stating that these crucial chips would soon be the new battery cells. However, the automotive industry in Germany and the world at large is heavily reliant on semiconductors imported from Asia, a fact the P3 Group refers to as a “repeat mistake.”

Before the coronavirus pandemic hit and caused major supply chain disruptions, Asian countries such as China, Taiwan, South Korea, Malaysia, Singapore, Japan and the Philippines supplied most of the world’s semiconductor chips. Once the pandemic hit and countries issued lockdown orders in 2020, automakers cut their semiconductor orders, fearing a slump in demand. However, demand for chips surpassed the supply even before the pandemic and other electronic segments quickly absorbed this supply.

Furthermore, slowdowns in Asian ports with super-high container throughput such as Shanghai, Shenzhen and Singapore have contributed to the shortage. Rising energy costs have also contributed to increased semiconductor chip costs as the ships that transport them across the seas burn through an incredible amount of expensive oil.

Although automakers such as Tesla and GM have found short-term solutions to the chip shortage, such as foregoing lumbar support from the passenger side and leaving out the start-stop and fuel-management modules, they will require long-term solutions to get around the shortage.

All eyes are now on leading EV makers such as Lucid Motors (NASDAQ: LCID) to see how resilient they can be in the face of such drawn-out challenges at this time when the electric vehicle industry is still in its infancy and poised for takeoff.

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