Tesla chief executive Elon Musk says the global semiconductor chip shortage is prompting companies to over-order, and has compared the behaviour to a more extreme version of the rush on toilet paper brought on by the Covid pandemic.
But he said the shortage, which has raised concerns the world may temporarily run out of new cars, would not last.
“Our biggest challenge is supply chain, especially microcontroller chips,” Musk wrote on Twitter on Wednesday.
“Never seen anything like it. Fear of running out is causing every company to overorder – like the toilet paper shortage, but at epic scale. That said, it’s obv not a long-term issue.”
While the feverish run on bog roll at the start of the pandemic was based on the erroneous notion that there was a shortage of toilet tissue – there wasn’t – the global chip shortage is the real deal. It’s the result of a perfect storm of factors brought on by the global pandemic, rapid digitalisation of the economy, trade wars and even extreme weather.
Booming demand for consumer electronics in the early months of the pandemic, combined with a drop in demand for cars, prompted chip makers to divert supply away from the auto industry.
But a surprise rebound in demand for cars in the second half of 2020 caught the auto industry by surprise, and as we reproted here car makers have struggled to source enough chips to keep up with demand.
Supply has been further constrained by US-China trade sanctions and a bout of extremely cold weather in Texas that forced two chip factories to shut down.
The car industry’s demand for chips has rocketed in recent years as cars increasingly became reliant on computers for just about everything. The industry now accounts for around 10 per cent of chip demand, and was the first to feel the shortage, which forces Ford to idle its Kentucky plant back in January.
But the digitisation of the entire economy, which is gathering pace espcially with the rollout of 5G of the Internet of Things, is pushing chip demand through the roof across a wider range of sectors, and the shortage is now affecting everything from smartphones to gaming consoles.
Car makers have said they expect the shortage to continue to the end of the year, while others, including Sony and Apple supplier Foxconn, have said it will last well into 2022.
In February US President Joe Biden called a review on the semiconductor chip supply chain, while the Japanese government has pledged 37 billion yen ($US337 million) to develop chip manufacturing capabilities in Japan – something electronics giant Sony has also reportedly been considering getting involved in.
While supply of chips are a fundamental for the electric vehicle industry, supply chains for minerals are an equal concern.
Tesla’s chairwoman Robyn Denholm, an Australian who was previously a senior executive at Telstra, said Australia is a key market for these minerals, particularly the lithium and nickel used in its battereis.
In a speech on Wednesday to the Minerals Council of Australia – the lobby representing the mining industry – she said Tesla would soon be buying $1 billion of lithium, nickel and other minerals from Australia every year.
Denholm said demand for EVs would increase 100 fold over the next 30 years, presenting a major opportunity for Australia not just to dig up the minerals and ship them around the world, but to process them onshore as well.
“Tesla estimates that last year, Australia supplied approximately 49 per cent of the world’s lithium ore – spodumene – but 0 per cent of the refined product suitable for battery cells,” she said.
“That lithium sold for about $US100 million ($129 million) – but if it was processed onshore in Australia, the value would have been more like $US1.7 billion. So that’s a $US1.6 billion annual opportunity and growing.”
James Fernyhough is a reporter at RenewEconomy and The Driven. He has worked at The Australian Financial Review and the Financial Times, and is interested in all things related to climate change and the transition to a low-carbon economy.