Semiconductor (chip) supply crisis and how to adapt
The chip shortage is lasting longer than expected and it is clear that it will affect new vehicle deliveries for some time to come. Therefore, several key questions need to be answered:
What is going on?
Many products these days, including all vehicles, contain semiconductor chips. Due to the pandemic and resulting factory closures, semiconductor supply is limited – even more so when economies reopened, and demand surged. The result: delays in production and longer waiting times, in particular for new vehicles.
When will the semiconductor crisis end?
This is a question that nobody knows the answer to at the moment. In the last half of 2021, forecasts showed an end to the crisis by early 2022, but it is still here. Today we know that they were more optimistic than the reality. In 2022, it is estimated that it will last until the end of 2022 or the end of 2023 for the most pessimistic forecasts.
Why is this crisis so difficult to overcome?
Just before the pandemic, the world’s semiconductor factories, mainly in East Asia, were already operating at 95% capacity. Considering that it takes about 4 years to build a semiconductor plant, and an additional 24 weeks to start up a production cycle, this means there is little to no buffer to accommodate the increased demand.
Also, the semiconductor crisis is now part of a much wider supply-chain crisis, which also includes a shortage of rare-earth minerals and other raw materials, plus inflationary pressure on production and transportation cost, driving up prices.
How does the chip shortage or supply crisis affect the vehicle delivery time?
There are several factors that affect delivery times: for different brands, different models, different engines. There is also a difference between countries. For example, Germany, Poland, the Netherlands, Spain and Austria are more seriously affected by delivery delays. This problem is less important in France, Belgium, Italy and Romania, among others.
Generally, we can say that the average time between ordering a vehicle and its delivery is 9 months to one year. This sounds like a long time, but the good news is that delivery times have decreased slightly since the peak of the delays, which occurred towards the end of last year.
Considering that this crisis is not going to end tomorrow, how should fleet managers adapt their medium-term strategies?
At ALD, we see four approaches fleet managers can take to the supply crisis, and our Key Account Managers can help with each.
- Anticipate your renewals. Start thinking and talking about what you and your drivers want in new vehicles well in advance. As mentioned, due to delays, this can mean in some cases up to a year before the renewal deadline.
- Extend your contracts. Many fleet managers are already familiar with this solution, as it helped many get through the pandemic. But it may still apply, especially considering that working from home has limited the mileage of many company vehicles.
- Consider the alternatives. If your usual makes and models are particularly affected by delays, we can help you explore equivalent makes and models.
- Choose flexible solutions. If you need cars for a limited yet unspecified period – say, new employees, or temporary projects – ALD Flex offers you the flexibility both you and your employees need.
Is there anything positive to be learned from this crisis?
This supply crisis is a great opportunity for Fleet Managers to develop a new strategy for their fleets. It gives them the opportunity to optimize their fleet, to review the commercial costs, to find the right partners to optimize this cost, and finally, to open up to new brands.
In this process, electric vehicles can be an important part of a renewed and revitalized fleet and new mobility strategies.