Microchips to Market: Understanding the Global Car Shortage

What Caused the Global Car Shortage?

At the core of the worldwide automobile scarcity is the tiny yet mighty semiconductor chip. From entertainment and power steering to airbags and ADAS (Advanced Driver Assistance Systems), modern cars depend on these processors for everything. There are between 1,000 and 3,000 semiconductor chips in a single automobile.

 

But why is there a sudden chip shortage that impacts the car industry?

Pandemic disruptions

Due to manufacturers closing or operating at reduced capacity, the COVID-19 pandemic caused a significant delay in chip production. At the same time, as online learning and remote employment became increasingly prevalent, there was a surge in demand for personal devices, including computers, game consoles, and cellphones.

 

Geopolitical tensions

Chip availability was further restricted by trade tensions between key semiconductor-producing countries, especially the US, China, and Taiwan. The auto industry in India, which mostly relies on imported electrical parts, experienced a series of delays.

 

Poor forecasting

At the start of the pandemic, automakers worldwide reduced their orders for chips, anticipating a sharp decline in demand. But in 2021, car sales recovered more quickly than anticipated. By the time manufacturers tried to reorder chips, the foundries were already booked for months by consumer electronics brands.

 

The result? A full-blown semiconductor crisis, leading to a massive supply chain disruption that continues to affect the Indian auto sector.

 

Impact of the Chip Shortage on the Automotive Industry

The chip shortage impact on the car industry has had widespread ripple effects, particularly on production capacity and consumer experience.

 

Production delays and long waiting periods

Indian automakers have reported reduced output and elongated delivery timelines. Popular models like the Mahindra XUV700 and Hyundai Creta saw waiting periods stretching into several months due to automotive production delays.

 

According to the Society of Indian Automobile Manufacturers (SIAM), overall passenger vehicle production dropped by over 12% in FY2022, driven in part by this crisis.

 

Higher prices and limited discounts

With fewer cars rolling off assembly lines, supply fell — but demand did not. This mismatch led to increasing automobile costs and limited negotiation opportunities for purchasers. Affordability was further impacted by dealers' reductions in Christmas offerings and discounts.

Delays in EV innovation

Electric Vehicles (EVs), which require even more chips than traditional internal combustion engine (ICE) cars, have been disproportionately affected. Innovations in battery management, smart dashboards, and autonomous driving features have slowed down due to chip unavailability.

 

This supply chain disruption has not only impacted new car availability but also threatens India's EV adoption targets under the FAME II scheme.

 

When Will the Car Shortage End?

While some easing has occurred in late 2024 and early 2025, full normalisation remains a work in progress.

 

Ramp-up by chipmakers

Multibillion-dollar investments in new fabrication facilities have been announced by major foundries. By 2025–2026, they are anticipated to begin mass manufacturing, which should greatly increase the availability of chips.

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Automaker adaptation strategies

To lessen dependency on chips, automakers are revamping vehicle architectures. For example, some models do not come with non-essential technical features, such as automated temperature control or rear-seat entertainment.

 

To increase resilience, Indian businesses are increasingly collaborating with domestic electronics companies through local sourcing and vertical integration initiatives.

 

When will supply stabilise?

According to S&P Global analysts, the global car shortage should subside by the end of 2025, although there may be sporadic fluctuations because of geopolitical concerns and global demand cycles.

 

Although certain expensive features could still experience delays, this implies that new car availability and price will gradually improve for Indian purchasers.

 

Conclusion

The global economy is interwoven, as the semiconductor crisis has demonstrated, and a disruption in one region may have an impact on consumers in another. Knowing the origins and effects of the worldwide auto scarcity will help Indian vehicle buyers better plan and control their expectations.

 

Additionally, keep in mind that preserving your car, new or old—is crucial while you wait for your ideal vehicle to arrive at the dealership. Shriram Car Insurance provides customised Car Insurance plans based on the value and usage of your car. Our plans guarantee that you are protected against unforeseen dangers, offering comprehensive protection and convenient add-ons, including Zero Depreciation, Return to Invoice, Consumables Cover, and Key Replacement. Check out our plans now since your peace of mind shouldn't be put on hold, even during a supply shortage.

 

FAQs

1. Why are new cars taking longer to deliver in India?

Due to the semiconductor crisis, manufacturers are facing production delays. This results in longer wait times, especially for high-demand models.

 

2. How has the chip shortage impacted car prices?

Limited supply has led to reduced dealer discounts and increased prices across most segments.

 

3. Are electric vehicles more affected by the chip shortage?

Yes. EVs use more semiconductor chips per vehicle, making them more vulnerable to shortages.

 

4. When is the global car shortage expected to end?

Experts suggest a gradual recovery through 2025, as chip supply improves and automakers adjust their operations.

 

5. Can Car Insurance help during delays?

While it doesn’t speed up delivery, comprehensive insurance like that from Shriram Car Insurance can protect your existing vehicle from damage, theft, and rising repair costs.