As more people become interested in electric vehicles because of the high costs of gasoline and the government rebates as well as a growing awareness about climate change, potential buyers are being told they have to wait for months and even years before their preferred EV can be available. The worldwide shortage of microchips is one key bottleneck preventing manufacturers from ramping up their production to meet growing demand.
Microchips control nearly every function in electric vehicles from monitoring the state of charge in the battery to the driver assist function and how the touchscreen on the dash operates. When the needed microchips aren’t available, manufacturers can assemble the vehicle and later install the chip before the car is delivered or even upgrade it while it is being used by the buyer if the chip controls an extra feature that is optional on the vehicle.
However, some microchips are installed in hard-to-access sections of the vehicle, and this means that if the needed chips aren’t available, production has to be suspended until those tiny parts can be installed before other steps of the assembly process can proceed. This explains why last year, nearly all electric vehicle manufacturers cut their production forecasts as it became apparent that the chip shortage wasn’t going to be resolved as quickly as they wished.
Another lasting effect of the COVID-19 pandemic was that as electric vehicle plants closed due to lockdown orders, chip makers switched to supplying makers of electronics such as smartphones, computers and even household items. These gadgets require cutting-edge chips, and chip makers realized they could make more profit by serving these markets.
As COVID-19 restrictions eased and EV production resumed in different markets, automakers suddenly realized chip suppliers were no longer as keen to deliver their orders as they were prior to the pandemic. Automotive chips rely on older technology and therefore aren’t as profitable as the chips used by other industries. Consequently, automakers have been relegated to a lower rung on the priority list of industries for which microchips are needed. Other supply chain constraints, such as the shortage of needed battery metals such as lithium, haven’t helped matters either.
As new makers of microchips open shop and start taking orders, the chip shortage is likely to be addressed gradually, and buyers of electric vehicles from various manufacturers such as Rivian Automotive Inc. (NASDAQ: RIVN) will begin to see shorter wait times before a delivery is made. Hopefully, no other crisis comes up to jeopardize the global economy again to the extent that COVID-19 did during 2020 and 2021.
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