Is There Still a Chip Shortage?

Some markets, like consumer electronics, are recovering from the chip shortage that has plagued industries since the start of the COVID-19 pandemic. However, other markets are still in the midst of severe supply chain issues, particularly the auto industry. How is the semiconductor chip shortage impacting different sectors in 2023, and when will it end? 

The State of the Chip Shortage in 2023

Global chip manufacturing facilities were operating near maximum capacity even before the chip shortage began in 2020. A rapid shift to online learning and remote work pushed demand for semiconductor chips beyond what the industry was capable of supplying.

The market has improved in some areas, although others face challenges. Consumer-grade chips for devices like phones and laptops have mostly caught up with demand. As of the first quarter of 2023, demand and prices for consumer GPUs are declining, with GPU prices returning to MSRP. During the height of the chip shortage in 2020, they were selling online for double or even triple list prices. 

Falling GPU prices are just one indicator of a current trend in consumer electronics. Demand is steadily decreasing as consumers grapple with economic challenges like the impending recession and inflation. Additionally, many people purchased new laptops, tablets and phones in 2020 during COVID-19 lockdowns. It has only been a few years since then, so many consumers may not need new devices. As demand declines, the consumer electronics market has been able to catch up and largely recover from the chip shortage. 

Unfortunately, some industries are not bouncing back from the chip shortage as well as others. While the consumer electronics industry could be nearing the end of its shortfall, the auto industry continues to struggle with supply chain issues. 

Challenges in the Auto Industry

Auto manufacturing is heavily reliant on the semiconductor supply chain today. Modern cars and trucks have numerous computers operating everything from the sound system to the steering. As a result, the production of new vehicles declines when manufacturers can’t get enough chips. An estimated 18 million cars are no longer being made due to the chip shortage. 

Why are chip shortages still affecting automotive manufacturers so severely when other industries are recovering? The auto sector only makes up about 9% of semiconductor demand but relies on a specific niche of chips. 

Many automakers are still using 200 mm semiconductor wafers, which are considered legacy technology today. The standard wafer size in most other industries is 300 mm, with some even moving to 450 mm. 

Most new chip fabrication facilities, or “fabs,” are being designed for manufacturing 300 mm wafers. While the auto industry continues to rely on 200 mm wafer manufacturing, new facilities are not being built at a high enough capacity to keep up with demand. 

Automakers are also still backlogged from the past few years. Many manufacturers halted production during the 2020 COVID-19 lockdowns but were slow to recover. As a result, other industries, like IoT and communications manufacturing, filled the void left by the auto industry in chip demand. Those sectors are bouncing back from the chip shortage faster than the automotive industry is. 

Additionally, although automotive semiconductors share manufacturing facilities with chips for other industries, they require different safety standards. The quality control and safety testing for an automotive semiconductor is generally more intensive than the same standards for a consumer laptop-grade semiconductor. 

Even with automotive chip manufacturers operating at maximum capacity, chips for this industry effectively take longer to produce. Every car needs numerous chips, which often don’t match. A shortage of a single type could delay production for an entire line of vehicles. 

How Long Will the Auto Chip Shortage Last?

Global car sales are expected to be around 70 million units in 2023, which is higher than in 2020, 2021 and 2022, but still lower than pre-pandemic levels. Demand for new vehicles may remain low, though. Auto prices are rising due to supply chain struggles and interest rates. At the same time, consumers are already grappling with higher living costs due to inflation and other economic challenges. 

All these factors may cause demand for new cars to remain low. However, this may actually help the auto industry catch up. The 2022 CHIPS Act will strengthen U.S. chip manufacturing over the next several years, relieving the strained semiconductor supply chain. More chip manufacturing facilities operating worldwide will give automotive manufacturers access to more supply and lower prices. 

There is a light at the end of the tunnel. In the meantime, the automotive chip shortage will likely last through 2023 and potentially continue in 2024 and 2025. 

How Will the CHIPS Act Help the Chip Shortage?

A key part of ending the shortage is strengthening the chip manufacturing industry. The 2020 COVID-19 pandemic may have triggered a sudden chip shortage, but it highlighted an issue that was already approaching. The increasingly digital world will need more semiconductor chips in the future. So, world leaders are launching large-scale plans to boost production. 

In 2022, the U.S. Congress passed the bipartisan CHIPS Act, short for Creating Helpful Incentives to Produce Semiconductors. The $280 billion program is designed to increase U.S. semiconductor manufacturing with funding for new manufacturing facilities, R&D, tax incentives and more. 

The U.S. only accounts for an estimated 12% of semiconductor manufacturing capacity worldwide. The CHIPS Act is intended to help the U.S. regain ground, reshoring American semiconductor supply chains. 

This program and others like it will go a long way toward addressing long-term chip manufacturing needs. In February 2023, the Biden-Harris administration announced the first CHIPS Act funding opportunity for manufacturers. This focuses on funding chip production facility construction, expansion and modernization. 

Increasing global chip manufacturing capacity is critical for ending the shortage and ensuring there aren’t more in the future. Higher global production of semiconductor chips will drive prices down, and numerous other industries, such as auto, will be able to catch up with demand. 

Is There Still a Chip Shortage?

The chip shortage has fluctuated over recent years but appears to be improving in many industries. The consumer electronics market has mostly bounced back, and other sectors, like IoT and communications, also appear to be recovering. However, automotive companies continue to grapple with semiconductor shortages. Programs like the CHIPS Act will help resolve this challenge in the years ahead.