An employee working at Mercedes-Benz assembly factor in Stuttgart, Germany in April 2020
An unexpected recovery in global demand for cars towards the end of last year led to a sudden surge in demand for crucial chips © Alex Kraus/Bloomberg

Germany’s carmakers have turned to Angela Merkel’s government in an effort to help ease a massive shortage in semiconductors that threatens to cripple production in one of the country’s biggest industries.

An unexpected recovery in global demand for cars towards the end of last year led to a sudden surge in demand for crucial chips, which semiconductor manufacturers, whose largest customers are smartphone and tablet producers, were unable to meet.

The German industry is hoping that political intervention could help move car suppliers up the chipmakers’ list of priority customers, particularly in Asia. However, carmakers are currently outside the top 10 on that list, according to industry insiders, with technology giants such as Samsung and Huawei taking precedence.

Volkswagen, the world’s largest carmaker, has been forced to furlough tens of thousands of workers, and the group has said it will make at least 100,000 fewer cars in the first few months of the year as a result.

Mercedes-maker Daimler has also had to cut back production, while Ford has closed its German plant in Saarlouis until the middle of February.

“Intensive global efforts are being made to improve the supply of semiconductors to the automotive industry,” the German car lobby, the VDA, said in a statement on Tuesday. It added that it was “in contact with the German government on this issue”.

The move by the VDA comes after its American counterpart sought assistance from the US government and Joe Biden’s incoming administration. Discussions have also taken place between Japan’s Automobile Manufacturers Association and government officials.

Germany’s business ministry said it was “monitoring the situation very closely” and was in contact with car companies who are struggling to secure chips from Asian suppliers.

It added that in the medium term, “it is important and crucial to expand [semiconductor manufacturing] capacities in Germany and Europe,” and it was funding 18 companies setting up chip factories in the country.

The semiconductor bottlenecks could last for several weeks, according to analysts, as semiconductor supplies take between three and sixth months to ramp-up.

Up to 2.2m fewer cars could be produced globally this year as a result, according to a report by Frank Biller, an investment analyst at Germany’s LBBW bank. Modern vehicles contain several dozen chips, powering everything from parking sensors to entertainment systems.

The crisis comes at a time when car executives were enjoying a strong rebound in car sales, particularly in China. If not for the shortages in semiconductor supplies, Volkswagen would have been hiring extra staff to meet the increased demand, according to people familiar with the matter.

However the Wolfsburg-based group has said that it expects to make up for the lost production capacity in the second half of the year.

Additional reporting by Kana Inagaki in Tokyo and Peter Campbell in London

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