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The scarcity of chips is predicted to value the auto business $ 110 billion in 2021

According to consulting firm AlixPartners, the ongoing shortage of semiconductor chips is expected to cost the global automotive industry $ 110 billion in sales in 2021.

The forecast is up 81.5% compared to an initial forecast of $ 60.6 billion released by the New York-based company in late January when the parts problem began to drive automakers out of production to reduce.

Mark Wakefield, global co-leader of automotive and industrial practice at AlixPartners, said a number of factors contributed to the increase, including a fire at a factory near Tokyo for chip supplier Renesas and weather-related issues in the automotive supply chain.

“The chip crisis caused by the pandemic has been exacerbated by events that are normally just bumps to the auto industry, such as a fire at a major chip-making factory, storms in Texas and a drought in Taiwan,” he said in one Press release. “But all of these things are now important issues for the industry – which in turn has brought home the need to improve long-term supply chain resilience.”

AlixPartners predicts that 3.9 million vehicle production will be lost this year due to the shortage. This is in line with January’s forecast that the shortage would reduce production of 2.2 million vehicles.

In the US, the shortage has led the Biden government to order a 100-day review of US supply chains. Around $ 50 billion of President Joe Biden’s $ 2 trillion infrastructure proposal is also earmarked for the American semiconductor industry.

Automakers like Ford Motor and General Motors expect the chip shortage to cut billions of their revenues this year. Ford said the situation will cut its profits by about $ 2.5 billion in 2021. GM predicts the shortage of chips will bring profits down by $ 1.5 billion to $ 2 billion.

Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts like power steering and brakes. Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors, if not more. High-priced vehicles with advanced security and infotainment systems have far more than a basic model, including different types of chips.

“There are as many as 1,400 chips in a typical vehicle today, and that number will only increase as the industry continues its journey towards electric vehicles, increasingly connected vehicles, and ultimately autonomous vehicles,” said Dan Hearsch, executive director of automotive and business AlixPartners industrial practice, it said in a statement. “So this is really a critical issue for the industry.”

AlixPartners expects the biggest impact on production in the second quarter and then gradually improves in the second half of the year and through 2022, Hearsch told CNBC.

“There’s enough to get everyone back up and running by the third quarter,” he said. “And then we should be buzzing again in the fourth quarter and then hopefully get back to normal next year.”

That doesn’t mean the supply bottlenecks will be completely resolved next year, but according to Hearsch, automakers should have enough semiconductors to produce as many vehicles as they want.

The global automotive industry is an extremely complex system of retailers, automakers and suppliers. The latter group includes larger suppliers such as Robert Bosch and Continental AG, who purchase chips for their products from smaller, more focused chip manufacturers such as Renesas or NXP Semiconductors.

Much of the problem starts at the end of the supply chain with wafers. The wafers, along with the small semiconductor, are used to create a chip that is then built into modules for things like steering, brakes, and infotainment systems.

The origin of the shortage lies at the beginning of last year, when Covid caused wheel standstills in vehicle assembly plants. When the facilities closed, the wafer and chip suppliers were redirecting the parts to other sectors such as consumer electronics that were not expected to be affected by home orders.

According to Hearsch, the top priority for companies right now is “to mitigate the short-term effects of this disruption as much as possible,” which can include anything from renegotiating contracts to managing the expectations of lenders and investors.

Carlos Tavares, CEO of Stellantis, said the automaker, founded in January through a merger between Fiat Chrysler and French automaker PSA Groupe, isn’t ruling out suppliers being able to repay the parts problem.

“It’s too early to say anything. We don’t yet know what the overall financial impact is … It’s going to be massive,” he said Wednesday during the Financial Times Future of the Car Digital Summit. “But it is clear that it is a competitive game … we will not rule this out.”

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