Can Southeast Asia Prevent Future Microchip Shortages?

Initially sparked by supply chain disruptions associated with the Covid-19 pandemic, a worldwide shortage of microchips has intensified in recent months, largely due to a new round of lockdowns in Southeast Asia. Given the impact on strategically important sectors like automotive, efforts are underway to prevent similar issues in the future.

Microchips – also known as superconductors – are the “brains” inside electronic devices. They manage a host of systems in vehicles, for example, including electric windows and driver-safety features.

Demand for microchips rose sharply during the early stages of the pandemic in response to increased sales of devices such as laptops, phones, and televisions. This, combined with an abrupt drop in production due to factory closures and supply chain disruptions, led to a major shortage worldwide.

The dearth of microchips intensified in recent months as producers in Asia implemented lockdowns in response to the Delta variant. This came at a particularly ill-timed moment for the automotive industry, stymieing its ability to capitalise on a recent surge in consumer demand.

In August car sales in China fell by almost 20% year-on-year due to a shortage of vehicles. Elsewhere that month, US dealerships added fewer than 1m new vehicles, a drop of 72% from the 3.6m added in August 2019.

While Japanese auto giant Toyota’s supply chain and large stockpiles of equipment proved to be relatively resilient following the Fukushima disaster in 2011, the superconductor shortage has impacted its operations.

The company – currently the world’s biggest carmaker – reduced its global production by some 430,000 units in September, and plans to cut production by another 333,000 in October. It hopes to partially offset this lost volume by the March 31 end of its financial year, to finish the period 300,000 vehicles shy of its original 9.3m target.

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