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Chip shortage moves connected cars to the backseat

Chips are down for the future of connected cars, with the global semiconductor shortage showing no signs of slowing down. Indeed, auto industry executives have reiterated that they expect the supply crisis to continue in the months to come. It is feared that innovation in connected cars is one of the main victims.

The chip shortage surfaced again this week when one of America’s largest automakers, General Motors, announced that it will have to suspend work on its full-size pickup trucks for at least a week due to a shortage. components needed to finish these vehicles. . This is a big blow to the company, as large pickups and SUVs are some of its best-selling and most profitable vehicles. The shutdown has already resulted in thousands of incomplete cars and trucks piling up outside its factories every day, The Detroit News and others have reported.

“These most recent programming adjustments are due to temporary parts shortages caused by semiconductor supply constraints in international markets facing COVID-19-related restrictions,” the company said in a statement. “We expect this to be a problem in the short term.”

GM’s problem is rooted in the fact that its premium trucks and SUVs are some of the most connected cars on the road. Semiconductor chips are essential components of systems such as infotainment systems and sensors used to make self-driving cars easier to drive. Some vehicles are equipped with more than a thousand such chips, especially more expensive models with more advanced safety and entertainment features.

Further reading: Threat of chip shortage worries businesses in the connected economy

So it will be the most connected vehicles that will suffer the most – and as production lines come to a screeching halt, the ripple effect is that there will be fewer of these cars arriving in the showroom.

It already is, and it drives up prices. The Consumer Price Index shows that prices for all cars in June rose 5.29% from the same month a year ago. As a result, used car prices have risen even more, almost 30% more than a year ago.

Used car dealers have experienced strong growth thanks to the shortage of new vehicles. One of the largest online used car dealers in the United States, CarGurus, said Thursday (August 5) that its second quarter revenue increased 130% from a year earlier. Subscription revenue generated by its online vehicle ad market also jumped 80%, and its net income for the quarter more than tripled to $ 27.4 million, from just 7.1 million. dollars a year ago.

At the same time, rival retailer Carvana told investors it delivered more than 100,000 vehicles in the three months ending June 30 and also posted its first quarterly profit, but was always clearly aware of the current headwinds in the industry.

“I think what’s happening at the industry level is probably more specifically driven by the problems with manufacturing new OEM cars,” Ernie Garcia, CEO of Carvana, said on a conference call. “And I think that’s probably the key factor that has led to the appreciation in the price of new and used vehicles,” he added.

Read more: Strong demand for used cars drives Carmax to record quarter

The chip shortage is forcing the auto industry to turn around sharply. For decades, automakers have accelerated towards smarter cars, continually adding newer and more advanced features. Now they’re suddenly phasing them out, pushing out more basic models that lack what many would consider standard features.

In May, Bloomberg reported that Japanese automaker Nissan was shipping thousands of vehicles without a navigation system that were supposed to come standard, simply because it doesn’t have the components and can’t afford to keep them seated. on a parking lot. And Renault has removed an oversized digital screen from the steering wheel of its Arkana SUV models to save on chips.

The question could put the brakes on President Joe Biden’s call to put more electronic vehicles on American roads. On Thursday, August 5, Biden issued an executive order calling for electric vehicles to account for half of all auto sales in the United States by 2030. It’s not a mandatory executive order, but it is still an executive order. ambitious target, given that IHS Markit in May predicted that electric vehicles will only account for 25-30% of all car sales by that year – and he was joined by CEOs of the three biggest car manufacturers nationwide.

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Some experts have already touted electric vehicles as a possible solution to the chip shortage, although it would take time to implement. Companies such as Tesla have already publicly announced that they plan to design and develop their own specialized chips, which would likely be more efficient and possibly allow less use. It has even been said that Apple is planning the same for its “iCar”, if such a thing has been around for a long time.

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But electric vehicles may well fall victim to the components crisis before they can save the connected car industry. Tom Blackie, founder and CEO of VNC Automotive, told Just Auto in May that he believes the chip shortage is the most serious threat to the advancement of connected cars in a generation.

“We are concerned that this will lead to a generation of cars that will quickly become incompatible with future mobile phones and connectivity technology,” Blackie said. “This may have implications for the development of electric vehicles and even autonomous technologies.”

Constellation Research analyst Holger Mueller told PYMNTS that it will likely take a few years for the auto industry to fully resolve its supply problem – but he is optimistic that this kind of shortage will not happen again in a future. such magnitude.

“The chip industry has always been a roller coaster, and today’s shortages teach automakers a lesson in supply chain planning and resilience,” Mueller said. “If they had kept their chips on order, the cars wouldn’t pile up now. We could definitely see a lot less smart cars on the road until these issues are resolved. “

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