September 19, 2021

Beyond Going Long

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The chip crunch isn't going to end soon.  The times when we could have had a new car the next day are now a thing of the past - companies and markets - the economy

The chip crunch isn’t going to end soon. The times when we could have had a new car the next day are now a thing of the past – companies and markets – the economy

Not only large automakers face an unfavorable situation, but also smaller supplier companies. Although they often do not need these chips directly, their end customers, such as car manufacturers, are unable to produce cars due to a lack of chips. Therefore, they don’t even need the ingredients you supply them with.

Analysts agree that there is already a shortage of vehicles on the market and delivery times are being extended. Therefore, buying a new car can be very difficult, according to Jana Glasová of 365th Bank. The waiting period of several months is no exception. “The times when we could have gotten a new car the next day, so to speak, are a thing of the past, because the stocks are mostly gone,” the analyst says. According to her, it is likely that the decrease in production will also lead to an increase in car prices, but this will also depend on how the demand will develop.

Read more The chip crunch is gaining momentum. After Volkswagen in Bratislava, Nitra Jaguar has also limited production

Trnava’s automaker Stellantis hasn’t produced through many changes in recent weeks. Volkswagen stopped producing SUVs in the capital, and the production of city cars switched to one-shift work. Until September 15, Jaguar Land Rover has also restricted production on the Nitra, as Kia’s Jelena avoids a major production halt.

Analyst Mate Hurcak from Slovenská sporiteľňa explains that price increases are a natural defense mechanism for the market against rising demand for chips. He describes the situation for Pravda, “Due to supply chain problems and longer waiting times, not only new car prices are going up, but used car prices are going up as well,” adding that prices are also raising regulations and emissions standards, which puts a growing demand for cars.

Thus, the complexities of chip shortages pass to supplier companies, which report problems and often have to stop production. It is estimated that the auto industry directly and indirectly employs more than 200,000 employees. Analysts predict that the chip crisis will not end soon and expect an improvement in the coming year.

Automakers fight like they know

In recent weeks, Trnava-based automaker Stellantis Slovakia has omitted several work changes due to a lack of chips. Delivery problems began at the Trnava plant in March. Stellantis is producing and discontinuing production alternately according to the current supply situation. According to the official opinion of the manufacturer, the situation is still very unstable. In recent days, production of Volkswagen Bratislava has also been limited. From Monday 23 to Friday 27 August, production of the SUV was halted and production continued in all three changes on Thursday and Friday. Lucia Kovarovic Makayova, a spokeswoman for the Bratislava plant, describes that production in the small city car segment is temporarily shifting to a single rosy operation.

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For the next week, production will be adjusted depending on the availability of parts. “For now, we assume that in the third quarter of 2021, chip supply will continue to be highly volatile, the situation will remain tense and at the same time the chip crisis will reach its peak,” he adds. Accordingly, further modification of production is not excluded.

Like other automakers, Jaguar Land Rover is currently experiencing supply chain disruptions in the wake of the pandemic and global semiconductor shortages. This situation has a direct impact on their productive potential. “We are closely monitoring the situation and adapting its production plans,” says Miroslava Reminarova, Director of Corporate Affairs at the Nitra plant. In this context, from Monday, September 6 to Wednesday, September 15, it temporarily limits the operational activities of the Nitra plant, which produces the Land Rover Defender and Land Rover Discovery brands. “We continue to feel strong demand for our products and are working closely with our suppliers to minimize the impact on our customers’ orders,” adds Remenárová. He also notes that in addition to working closely with suppliers, the company has taken various measures to reduce the impact of semiconductor shortages, one of which is to focus on profitable models. “The near future remains uncertain about the availability of semiconductors,” he added.

According to its spokesman, Tomas Potoček, the Kia Slovak automaker in Zilina has so far been able to avoid major production outages. “Until the next period, we are working to ensure production is as smooth as possible,” he says. According to him, the situation is developing and they will see what the next days and weeks will bring. “It is very difficult to predict the future, but we firmly believe that the situation will gradually improve at the beginning of the year,” he adds.

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Also a problem for suppliers

Car production has decreased in Slovakia and currently in the world, mainly due to the loss of chips. According to an analysis by the Slovak National Bank, car production in the eurozone fell by about 30 percent in the first half of this year. Slovakia has not ignored the problem either, as it has so far manifested itself in large fluctuations in production.

Many Slovak suppliers are associated with local automakers. On the other hand, it is also a part of global supply chains. Ján Pribula of the Association of the Automobile Industry explains that 60 percent of their production is destined for export, that is, for cars and customers outside our territory. “If automakers have to stop production, and if fewer cars are produced than planned, the problem automatically passes to suppliers,” he adds.

The daily Pravda investigated whether chip problems also affect suppliers in the auto industry. Responses were sent from Continental Automotive Systems Slovakia Electoral, which manufactures brake calipers and electronic parking brakes for major car manufacturers around the world, and from German company Schaeffler, which has bearing plants in Skalica and Kysucké Nové Mesto. And thirdly, the company Brose, which is focused on the production and development of side door levers and its drive at the plant in Prievidza.

All three car companies agree that the global shortage of semiconductors has also affected their business. Zvolen has had to stop production several times this year and expects to have to use that measure by the end of the year. “It is very difficult to predict the behavior of the market, so we are forced to always be on the alert and practically respond to the evolving situation,” says Kristína Kavická, Director of Human Resources. Production volumes fell sharply due to the chips crisis. However, the company did not want to reveal the exact data.

The chip shortage has shut down many Schaeffler customers, which has also affected demand for their components. Brose is also affected by the global shortage of semiconductors. In her opinion, she stated that the potential effects of a lack of supply on the development of their business are not yet foreseen. “We are monitoring the situation and constantly adapting our planning to current developments,” said Diana Michosova, assistant plant management.

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The question arises of what the lack of chips will mean for suppliers. J&T analyst Stanislav Banes claims that these will counterbalance the growth of their business and production, similar to cars. Planning production in fluctuating delivery times is very complex for companies.

How long will the reverse position of the chip last? According to Banes, the chip crisis is likely to be at its peak for now, but complications related to chip shortages may persist over the next few quarters or even years. “Semiconductor production capacity cannot be increased overnight. Building new plants is technologically complex and can take up to three years.” Analyst Jana Glasová predicts that the chip crunch will continue throughout this year and early next, negatively impacting production at our plants as well. Then, according to her, production can begin to grow again and fulfill unfulfilled and late orders.

Where the chips disappeared

Where did you lose the chips? NBS analysts explain that the onset of the pandemic reduced chip production, as the shutdowns of economies also affected producers of these products. As people were at home during the lockdown, interest in computers, tablets, phones and game consoles increased. All of these products are chip based. The pandemic has reduced supply and increased demand, creating the current problem of chip shortages.

According to analysts, the trade war between the United States and China also played a role, as well as crypto-mining, which relies on the most powerful computers and processors. It is the production that requires a lot of water. “Supplies for mobile phones or laptops are more attractive to manufacturers. Their production volume is immeasurably greater than that of cars. Therefore, chip manufacturers preferred these customers and car production fell around the world,” NBS economists Rastislav Čársky and Alena Kišová analyze the situation . So Slovakia has not bypassed this problem either.