Playstations scarce, automakers stalled amid semiconductor shortage brought on by pandemic

Max Nekrasov, 15, is relentless in his repeated search for a sought-aftertreasurethat's been elusive duringthe COVID-19 pandemic: ThePlaystation 5.

The Toronto teen runsa Twitter account with more than 19,000 followers that flags whenever a retailerrestocksthe popular video game console.

"If you're really trying each [product] drop, you're probably going to get one," said Nekrasov, who has already scored his own Playstation5, but wants to help others find theirs. "But it can take really a few months before you can get one, because this stockthere's not that much at all."

It's not just a problem for video-game lovers. Ashortage of semiconductors the microchips needed in everything from military equipment to coffee makers is causing delaysaround the world, disrupting supply chains for smartphonesand causing major problems in the auto industry. For consumers, it means a delay in getting some products. Itcould also meanhigher prices.

The paucity of Playstations is partially due to an increased demand in home electronics as people have been hunkeringdown amidCOVID-19 lockdowns and stay-at-home orders. But another factor is thatthat Sony can't source enough semiconductorsto keep up with global demand.

"Thesupply chain is broken, from the beginning all the way to assembling the goods and delivering it to the customer," said Nikola Dimitrov, a vice-presidentwithAISTechnologies Group in Windsor, Ont.

Dimitrov's company needs semiconductor chips forprecision imaging machines thatassemble key auto parts and verify the work hasbeen done correctly. Dimitrov said there's been a lag of several months during the pandemic, affecting bothwork timetables and billing cycles.

"There are so many moving components that have to just fit together to deliver the product to the customer on time, and any breakage in any of these links will affect the timing [and] sometimes the end result," he said.

Pandemic changes demand patterns

The pandemic changed global demand patterns people bought more electronics but fewer cars and trucks, so automakers scaled back production, said Will Mitchell, a professor of strategic management atthe Rotman School of Management in Toronto.

"They don't order as many chips,[so] the people whomake the chips cut back on staffing, shut downsome facilities and have less of a base to make more chips," he said. "Now we're in2021, demand is coming back, orders for chips are coming backand the companies that make the chips have to scale up production."

Those companies in Korea, Taiwan andSingapore, among other placesneed two to three months to ramp back up, he said.

That is bad news for automakers.

Chrysler shut down its Windsor, Ont., plant for three weeks due to the shortage, forcing temporarly layoffs.General Motors idled three plants, including one in Ingersoll.

Data firm IHS Markit estimates that worldwide shortages will only bottom out in March, putting the production of a million light vehicles at risk in the first quarter. Strategy Analytics forecasts a drop in car production in Europe and North America of 5 to 10 per centthis year.

Moody's predicts the chip shortage will cost Ford and General Motors about one-third of their pretax earnings this year.

IHS Markit expects the lost production could be made up later in the year. But the shortage could compound already tight vehicle inventories, driving up prices that rose when factories were closed last year due to the novel coronavirus.

Specialist chipmakers like Germany's Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritizing high-end electronics makers.

Automakers 'not as important as they think they are'

Dimitrovsaid part of the issue is that automotiveis a relatively small sectorfor chipmakers.The auto industry spends around $40 billion US a year on chips about a tenth of the global market.

"The business model of the chip manufacturers, I think, is playing a big roleinto this," he said. "I think the automotive sector is finally realizing they are not as important as they think they are."

WATCH | How the pandemic has affected supply lines

How the pandemic has affected supply lines

4 years ago

Duration 1:18

Nikola Dimitrov of AIS Technologies Group in Windsor, Ont., discusses how the pandemic has affected supply lines.

Border closures anddifficultysourcing raw materials have also played a large role, Dimitrov said.

Supply-chain questions have left some politicians and analysts clamouring for more national independence. U.S. President Joe Biden signedan executive order Wednesday to review U.S. supply chains for a number of items, including semiconductors.

The U.S. will look at thepossibility of increased domestic production, but Biden will also look to work with international partners to ensure a stable and reliable supply chain.

Mitchell said products typically need parts from multiple countries, so it's not as simple as keepingmanufacturing at home.

If there's an upside, "it's that'll help us recognize the value of global trade," he said, adding that closing borders means a weaker economy and society.