A Chip Shortage Crisis Has Been Averted — for Now

Key Points

• Automakers can breathe a sigh of relief as a shortage of semiconductors had started to interfere with vehicle production. 
• A last minute deal made by China and the U.S. will ensure that semiconductor production continues.

The U.S. and China have come to an agreement on semiconductor shipments, averting what could have possibly been the second time in less than decade that a chip shortage threatened to upend the auto industry. The deal will allow exports of semiconductors made by Nexperia to continue, allowing automakers to finally get production back on schedule. (Nexperia is a Chinese-owned tech company that makes chips for the auto industry and is based in the Netherlands.) 

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Wait, What’s Happening?

Key Takeaways:

• The Dutch government took control of Nexperia at the end of September over security and trade secret concerns. 
• Dutch control of the company started a snowball effect that eventually stopped semiconductor shipments to automakers around the world, putting vehicle production in jeopardy. 

If you’re confused about what’s going on, stay with us, as it’s a roller coaster of international drama. The whole ordeal started at the end of September, when the Dutch government became concerned that Nexperia’s Chinese owner, a company called Wingtech, had engaged in stealing trade secrets for its wafer formula and was giving that formula to its competitors back in China. Because of this, Wingtech was placed on a trade blacklist by the U.S.

Wingtech owner Zhang Xuezheng announced the company would be closing its German research and development facility and that it was looking to cut 40% of its European staff. Shortly after this announcement, the Dutch government moved to take control of the company by using the Goods Availability Act. According to The Wall Street Journal, the Dutch took control to ensure that Europe didn’t lose its “technological knowledge and capabilities”. Not long after, Wingtech stopped chip exports at the command of the Chinese government, and automakers were left scrambling. By mid to late October, automakers such as Nissan, Hyundai and Mercedes-Benz had announced that the Nexperia situation would impact vehicle production and began preparing their plants for the looming chip shortages.  

We’ve Seen This Before

• Key Takeaway: The threat of the Nexperia chip shortage shows just how fragile the international trade environment is and how it can shift at any moment, upending the auto industry. 

Despite the U.S. having more semiconductor manufacturing facilities than China, the whole Nexperia ordeal shows just how fragile the whole system is and how easy it is for China to destabilize the whole auto industry. Think about it: A single semiconductor manufacturer pulls its exports and automakers have to either prepare to or outright stop production. 

You’re also probably wondering why these chips are such a big deal for automakers. Modern cars are very advanced, and the chips used in their manufacturing control everything from antilock braking systems and infotainment displays to power seat controls.  

We’ve seen the auto industry come to its knees because of this before. In 2021, the world was in the midst of a major chip shortage thanks to the COVID-19 pandemic. Automakers were hit the hardest with vehicle production either slowed or paused, causing a ripple effect of low dealer inventories and rising vehicle prices for buyers. For instance, Toyota was one of the first major automakers to cut production in early 2021. Cars.com data at the time showed that Tundra inventory fell nearly 27% thanks to a production pause at the automaker’s Texas facility. Seven other automakers followed suit, announcing that chip shortages would affect production for nearly 40 different models. A bit of relief came in mid-2022 when President Joe Biden signed into law a $52 billion semiconductor package that supported production in the U.S. It was badly needed, as some 2.3 million vehicles had been affected by the chip shortage at that point. 

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Here’s What Consumers Can Do if This Happens Again

• Key Takeaway: Fallout from a chip shortage can leave buyers facing an uphill battle of higher costs and less vehicle inventory.

What can you do as a buyer to prepare for something like this? Not much. We’ve said before that we can’t exactly predict how a chip shortage will affect things such as a certain model or trim level, but there are things you can do that will help you shop smarter if something like this happens again. 

Start by keeping an eye out on the market for the car you’re looking for. When these chip shortages happen, certain features may start to become unavailable, so it’s best to keep checking if you’ll be able to find what you’re looking for. 

This leads to the second point: Try and keep an open mind. Chip shortages can affect the availability of certain trims and specific features, so when you go looking for something like a Toyota RAV4 XLE all-wheel drive with a moonroof and can’t find it, you’ll know it may have something to do with the availability of chips. You can remedy this by either giving a bit on what you want — forgoing a panoramic moonroof for a regular moonroof for instance — or widening the search area you’re looking for a vehicle in. Or if you don’t have to have a new car right then and there, you can simply wait for market conditions to improve. 

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