Electronic System Design and Manufacturing Sector – M-SIPS, National Policy on Electronics, etc.

Semiconductor chips shortage, and how carmakers are coping


From UPSC perspective, the following things are important :

Prelims level: Chip famine

Mains level: Not Much

A shortage of inputs, especially semiconductor chips, has made India-based car manufactures and premium bike makers curtail production across categories.

Do you know?

Electronic parts and components today account for 40% of the cost of a new internal combustion engine car, up from less than 20% two decades ago.

Chip famine

  • The trigger point was the beginning of the Covid-19 pandemic and the subsequent lockdowns across the world that forced shut crucial chip-making facilities in countries including Japan, South Korea, China and the US.
  • A key feature in a chip shortage is that it almost always causes cascading effects, given that the first one creates pent-up demand that becomes the cause for the follow-up famine.

Why such famine?

  • The COVID-19 pandemic caused disruptions in supply chains and logistics.
  • This is coupled with a 13% increase in global demand for PCs owing to some countries’ shift to a stay-at-home economy.
  • This has impacted the availability of key chips necessary for the manufacturing of a broad range of electronics being a necessary component of every industry.

What is the impact of the chip famine?

  • Consumers of semiconductor chips, which are mainly car manufacturers and consumer electronics manufactures, have not been receiving enough of this crucial input to continue production.
  • There were two reasons for this: a steady decline in input prices and improvements in the processing power of chips.
  • The number of transistors mounted in IC circuit chips has doubled every two years.
  • Notably, the increase in chip consumption over the last decade is also partly attributable to the rising contribution of electronic components in a car’s bill of materials.

How have vehicle makers responded?

  • Supply constraints are learned to have caused some output issues at notable Indian auto firms.
  • In addition to delaying vehicle deliveries, some companies have reportedly started discarding features and high-end electronic capabilities on a temporary basis.

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