Chip scarcity casts shadow on China’s auto trade restoration By Reuters

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© Reuters. A Volkswagen ID.6 X is on display in front of the Shanghai Auto Show in Shanghai

By Norihiko Shirouzu and Yilei Sun.

SHANGHAI (Reuters) – Auto industry executives are hit by a global semiconductor shortage affecting manufacturing in China after hoping the world’s largest auto market could fuel the global recovery in the sector.

Automakers around the world have had to adjust assembly lines due to bottlenecks caused by manufacturing delays that are blaming some semiconductor manufacturers for a faster-than-expected recovery from the coronavirus pandemic.

Volkswagen AG (OTC :), China’s largest overseas automaker looking to sell more than four million vehicles in the country, said the impact of the shortage remained undiminished in the second quarter of this year.

Stephan Woellenstein, China boss at Volkswagen (DE :), told reporters on Sunday that it was difficult to estimate how much production Volkswagen could lose week after week or even month after month due to the lack of chips.

“It’s really like fighting fires … In some cases we switched to a different chip, so we switched suppliers,” he said before the Shanghai Auto Show, which opens on Monday.

China, where over 25 million vehicles were sold last year, became a ray of hope for automakers including Volkswagen and General Motors (NYSE 🙂 as the global auto industry was hit hard by the pandemic.

In China, however, there was news of the shortage of car chips for the first time last year. The shortage was compounded by a fire at Renesas Electronics’ chip factory in Japan in March.

In 2019, automotive companies accounted for around a tenth of the $ 429 billion semiconductor market, according to McKinsey, with NXP (NASDAQ 🙂 Semiconductor, German company Infineon (OTC :), and Renesas being key suppliers to the sector.

Automakers including Nissan (OTC 🙂 Motor, Ford Motor (NYSE :), and Nio (NYSE 🙂 Inc, all reported cutting production due to the shortage of chip supplies.

Li Shaohua, chief official of the China Association of Automobile Manufacturers, said the chip supply shortage weighed 5% to 8% on automobile production in the first two months of this year and expects the impact to weaken from the third quarter of this year.

As a result, the China Automobile Dealers Association believes that vehicle inventory in China will continue to decline as the chip shortage affects overall auto production. The supply of some car models may not be able to meet the demand.

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