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.
- 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.