Chip shortage to cost automakers $110 billion in revenues in 2021

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The global semiconductor chip shortage will cost automakers $ 110 billion in revenue losses this year, up from a previous estimate of $ 61 billion, consulting firm AlixPartners said, as it predicted the crisis will hit production of 3.9 million vehicles.

The chip crisis has meant that automakers now need to be “proactive” and create “supply chain resilience” in the longer term to avoid future disruptions, the company said Friday.

Vehicle manufacturers have historically entered into direct supply agreements with producers of certain raw materials, including precious metals such as palladium and platinum, which are used in exhaust gas cleaning systems.

The more direct approach to securing supplies of precious metals was launched after a disruption in supply and prices in that market.

Automakers are now looking to develop direct relationships with semiconductor manufacturers, said Mark Wakefield, co-leader of AlixPartners’ global automotive practice.

“These things have been shaken into existence,” he said.

Automakers have in the past been reluctant to make long-term commitments to purchase semiconductors or other raw materials and assume the financial obligations for such deals, Wakefield said.

Now, “the risk is real. It’s not a potential” risk of losing production due to semiconductor shortages, he added.

Separately, Ford said on Thursday that it is redesigning auto parts to use more accessible chips, in response to the global semiconductor shortage.

Reporting by Ankit Ajmera in Bengaluru and Joe White in Detroit; Editing by Amy Caren Daniel