If you have been around any gamer in the last year, they would have more than likely mentioned how difficult it is to get your hands on a new PlayStation 5 or Xbox console. This is due to a global chip shortage. And when we say ‘chip’ shortage, we do not mean a shortage of the potato kind. We’re referring to ‘semiconductor chips’, which are essential components in electronic devices.
An estimated 169 industries have been affected by the shortage of chips.
What caused the shortage?
The shortage began last year and has continued right through to this year. A combination of events led to the shortage, with the COVID-19 pandemic being the largest factor. The U.S. and China trade war has also been cited as a contributing factor.
The shortage was supposed to be only a temporary issue when factories in China closed during the beginning of the pandemic. However, despite production being back to normal, and in some cases above pre-pandemic levels, the shortage has remained, turning into a crisis.
The automotive industry has also significantly suffered the consequences of the shortage, with almost every automaker being affected. This has been due to the way its supply chain works. Automakers tend to run incredibly lean supply chains for vehicles to keep costs down, meaning the manufacturers do not have the buffers to absorb the supply shock. This meant the shortage was felt instantly and resulted in a pause on new car manufacturing.
Why is this such an issue?
Supply and demand. The demand for these products, whether it’s a Playstation or new car, has remained or risen, however, the supply of those products has significantly decreased due to the lack of chips. This then results in a surge in prices for consumers. Using cars as an example, if new cars are not being produced, those in the market to purchase a car are turning to second-hand vehicles. With this change of consumer behaviour, used car prices went up 37 percent this year, above the pre-pandemic high set in February last year.
It is predicted that it may take up to two years for the issue to fully resolve, meaning prices are likely to rise while manufacturers play catch up with supply.