Global Chip Shortage to Interrupt Volvo’s Production in China and the US

Volvo Cars, which is owned by Chinese automotive company Zhejiang Geely Holding, said on Wednesday that they will suspend or adjust production at their factories in China and the United States this month, citing a global chip shortage. 

“We expect the situation to become critical during the second quarter and have therefore decided to take measures to minimize the impact on production while working daily to improve the situation,” the Swedish carmaker said in an emailed statement, according to Reuters

Volvo is not an isolated case. A severe semiconductor crunch has disrupted the auto industry worldwide, especially since chips play an increasingly important role in vehicles, helping control everything from engines and brakes to airbags and entertainment systems. US automaker General Motors announced Monday that it will launch a light-duty full-size pickup without a fuel economy module due to a lack of chips. Japan’s Honda Motor said on Tuesday that it will temporarily stop production in the US and Canada from next week, with their supply chains exhausted. 

According to research firm IHS Markit, the shortage will cause the global car industry to produce nearly 700,000 fewer cars than planned for the first quarter of 2021.

The pain is partly a self-inflicted wound to the automotive industry. When the COVID-19 pandemic hit the economy earlier last year, companies halted preparations for future car manufacturing as they underestimated the speed of the rebound in market demand. Automakers bear responsibility for failing to place orders early enough, while chipmakers chose not to stockpile supplies for them, The Wall Street Journal reported. 

SEE ALSO: Geely and Volvo Abort Merger, Will Set Up New Company to Combine Powertrain Units

Meanwhile, automakers also compete with consumer electronics manufacturers for chip supplies as a rising stay-at-home trend has boosted sales of laptops, servers, smartphones, video-gaming consoles and other devices since the coronavirus outbreak. 

South Korean mobile giant Samsung announced on Wednesday that it might skip the introduction of a new Galaxy Note – one of its flagship smartphone models – this year, warning of a “serious imbalance” in semiconductors globally. 

Zhou Zixue, chairman of Semiconductor Manufacturing International Corp, said at an event on Wednesday that the world is suffering from an unprecedented chip shortage. “We have to deepen our cooperation, and we have to pay more attention to innovation. Only by doing that we can ease the current situation,” said Zhou. 

Chinese brokerage Guotai Junan Securities forecasts that the chip-shortage fallout would likely last through the third quarter of 2021. 

In February, Volvo shut down its factory in Ghent, Belgium as the shortage had put supply chains under pressure.