You have probably heard of the worldwide chip shortage – the ones that go in cars, computers, etc, not the ones you eat! So why is this such an issue and will it affect your business?

The shortage is a perfect storm and estimates are that it won’t get better until mid-2022 (and same pundits estimate 2023). It has hit the car manufacturing industry particularly hard for some special reasons, but is also affecting computers, electronics, and appliances amongst others.

Despite chips being small, the factories that manufacture them (AKA Chip Foundries) are massive as there are significant cost savings with scale. A new Foundry takes two years plus to plan, get built and into production, which is why the solution will take a while.

Covid has affected production at many plants around the world with periodic close downs and the need to take extra health and safety precautions also limiting production efficiency.

With everyone working from home or in lockdown sales of computer equipment, home networking and home leisure such as gaming and TV’s have exploded – all of which use chips.

The car industry cancelled a lot of chip orders when Covid hit, assuming car demand would be significantly down. The reverse proved to be the case, with no overseas travel, a new car became a hot option, and people preferred individual transport to public transport. Manufacturers then found that other electronics manufacturers had snapped up the spare capacity, so getting back into production was a challenge. Added to this a fire in the Renasas chip plant in Japan worsened supply.

Manufacturers around the world are having weeklong shutdowns due to lack of chips. Some US plants have built cars which then sit in the factory lot until the chips arrive, and we now have six month+ waiting lists for many popular new vehicles in New Zealand, for example, Toyota NZ has a 12,000 vehicle order bank of undelivered vehicles.

If you want anything with a chip in it other than a burger, it might pay to plan ahead and order in advance.