China: Shortage of chips hits Jul'21 auto production, sales

Since the beginning of this year, China's automotive industry has been plagued by the shortage of chips, a challenge which has been aggravated of late. Analysts believe that the shortage of chips in the automotive industry may last for a long time.

The latest data released by the China Association of Automobile Manufacturers (CAAM) show that in July this year, the production and sales of automobiles were 1.863 million and 1.864 million, down 15.5% and 11.9% y-o-y, and down 4.1% and 7.5% m-o-m. In the first seven months of this year, the production and sales of automobiles were 14.44 million and 14.756 million units, up 17.2% and 19.3% y-o-y, respectively. The growth rate continued to drop by 7% and 6.3% from the previous six months.

CAAM said that the shortage of chips is an important reason for the decline in automobile production and sales. It is understood that since the beginning of this year, due to the shortage of chips and other factors, the overseas factories of Toyota, Volkswagen, Ford and many other car makers have repeatedly cut or even stopped production. Analysts believe that the shortage of chips may cause the global auto industry to lose $110 billion. This year, global auto production may drop by about 5 million vehicles.

The shortage of chips has also affected domestic auto companies in China. A few days ago, Great Wall Motor revealed that due to chip supply problems and shortages of key components such as ESP and four-wheel drive controllers, the production capacity at units that was enhanced cannot be increased. The waiting period for orders for some models is affected by different factors, and the waiting period for delivery is estimated to be 4-5 months.

According to reports, domestic automotive "micro-control units", which are mainly used for various body control systems such as engines and lights, are especially out of stock. As chips are out of stock, chip prices have risen continuously of late.

With the rapid development of new energy vehicles and smart cars, the demand for chips continues to grow. Research institutions show that the current average chip content of each car is $350, pure electric vehicles can reach $770, and high-end electric vehicles can exceed $1,500, which is 5-6 times that of basic types of cars.

Starting from the end of 2020, there has been an imbalance in global automotive chip supply and demand. Due to unclear information such as the gap in the supply of automotive chips and the recovery period, distributors have been hoarding and increasing prices.

In response to this, the State Administration for Market Regulation recently introduced measures to address outstanding issues such as high prices in the automotive chip market. Based on price monitoring and reporting clues, investigations have been initiated against automotive chip distributors suspected of driving up prices. The General Administration of Market Supervision will continue to pay attention to the prices of important commodities such as chips, and further strengthen supervision and law enforcement, and investigate and severely punish illegal activities such as hoarding, and colluding to increase prices.

Industry experts said that China's measures to suppress price hikes and stock hoarding can ease the tight supply of chips to a certain extent and stabilise prices. At this stage, the global automotive supply and demand gap is large. The insufficient chip supply has caused some domestic auto companies to reduce production. In recent months, some auto companies have sharply reduced their wholesale sales. In particular, the order demand of auto dealers does not match the existing inventory, which has caused the retail end to be weak.