Chip supply crunch likely to hit China's auto output in Q1 2021

Automobiles have become increasingly dependent on chips - many of them made in Europe - for everything from computer management of engines for better fuel economy to driver-assistance features such as emergency braking.

Representational image. (Unsplash)

A shortage of certain auto chips may start to have a big impact on car production at some Chinese companies in the first quarter next year, a senior industry executive said on Tuesday, which may cast a shadow over the global auto sector's recovery.

Automobiles have become increasingly dependent on chips - many of them made in Europe - for everything from computer management of engines for better fuel economy to driver-assistance features such as emergency braking.

But German auto suppliers Continental, Bosch and Volkswagen, the world's largest carmaker, warned last week that a global shortage of semiconductor components could impact production in China, which has seen demand sharply rebound after bringing the COVID-19 pandemic largely under control.

Li Shaohua, deputy secretary general at the China Association of Automobile Manufacturers (CAAM), told its official publication AutoReview that according to their investigation, production at some companies will have "relatively big impact" in the first three months of 2021.

But CAAM does not expect the chip supply shortage to have that too large an impact on the industry's whole year output, he said, without elaborating further on the impact on volumes or financials.

The supply shortage is caused by inadequate global investment into chip manufacturing, rising demand for chips from electronic devices, and production slowdowns in Europe and Southeast Asia due to the second wave of COVID-19 pandemic, Li said.

He added that as companies in the supply chain are adding inventories of key chips and related materials and capacity of chip making is still not enough, it was inevitable that chips price will increase.

Global automotive production slowed down earlier this year due to strict lockdowns to curb the pandemic, but it has come roaring back, especially in China, as consumers prefer to travel in private vehicles than taking public transport.

Reporting by Yilei Sun and Brenda Goh.