Are we going to see an end to the global microchip shortage soon?

Are we going to see an end to the global microchip shortage soon?

11 October 2021 | Kate Kozlowska | 10 min read

As the global semiconductor shortage worsens, fleet operators and car drivers are facing delays of over one year for certain new car and van models. Other vehicles are being delivered with missing features.

How long will the global microchip shortage last?

Unfortunately, executives in the automobile industry do not expect the issue to be resolved any time soon.

According to Mercedes-Benz CEO, Ola Kallenius, the auto industry could struggle to source enough semiconductors throughout next year and into 2023 due to soaring demand for them, though the shortage might be less severe then.

Mercedes has lowered its annual sales forecast for its car division, predicting deliveries will be roughly in line with 2020, rather than increasing significantly.

BMW CEO Oliver Zipse expects the general tightness of the supply chain to continue in the next 6-12 months.

VW purchasing chief Murat Aksel is a bit more optimistic: “We hope for a gradual recovery by the end of the year.” There needs to be a 10% increase in chip production capacity in the automotive industry, he says.

Of course, it’s not just the carmakers who are affected. The ongoing disruption has a detrimental effect on leasing companies as well as creating unprecedented levels of demand for used vehicles, which in turn is driving up residual values.

As a result, some manufacturers have been forced to close temporarily their factories, while others are facing steep price increases due to the soaring price of the crucial chips.

Shortage of semiconductors affects fleets

The automotive crisis may have an even greater impact on the automotive sector than the Coronavirus pandemic. A Fleet News poll found that almost 95% of fleets reported experiencing vehicle delays.

It is advised that fleets remain patient and continue placing orders for new models while also being warned that existing models may remain in operation for more than a year.

The impact of the situation on fleets is quite severe, according to Matthew Walters, head of the consultancy at LeasePlan. “Last year, we saw a number of formal extensions for companies during the worst of Covid-19 where vehicles couldn’t be delivered and where vehicles couldn’t be collected. These vehicles needed to be extended outside their primary contract term. (...) Now we’re in a situation moving into next year where, as an industry, we are likely to see an extension programme again.(...) I think it’s a similar period of activity with our customers now, to help them understand what it means for their current order bank, when their orders will be delivered and what that means for their replacement cycles.(...) The customer still needs to place orders for vehicles to get themselves in the queue and we are working with them and being open and frank as to when those vehicles are going to be delivered.”

As a result of the supply crisis, new vehicle registrations dropped by 22% in August - the lowest monthly figure since 2013. August is traditionally one of the slowest months for new car registrations, but it is down 7.6% compared to the average over the last decade.

According to the Society of Motor Manufacturers and Traders (SMMT), registrations for the period January-August are 25.3% lower than the 10-year average.

A rising tide of contract extensions

Some of the country's largest fleet managers confirmed at a Fleet200 meeting that leasing firms were accommodating to contract extensions. 

They noted, however, that some drivers of company cars face the prospect of paying higher benefit-in-kind (BIK) tax bills as they wait for electric and plug-in hybrid models to arrive.

Sue McGuigan, fleet manager at Eric Wright Group, said: “Drivers switching to electric vehicles (EVs) were expecting a reduction in BIK. (...) It’s a bit upsetting for them as they’re now facing extra costs for the next few months. But, there’s nothing we can do about it.”

Rory Morgan, the head of logistics support at Iron Mountain, stated: “There has to be some realisation that this is how it is at the moment. It’s not just semiconductors, it’s steel and other raw materials that are affected across the board.”

Ogilvie Fleet's sales and marketing manager Nick Hardy says the company has more vehicles on extended contracts than ever before. “We are having to work even more closely with clients with regard to their policies to take into account the increasing capital cost of vehicles and, therefore, rental increases, given the rebalancing of supply and demand factors. (...) Those clients who are embracing lower mileage contracts, as a result of new remote working practices, and at the same time adopting an EV policy, taking advantage of the lower total operating costs, are all winning the battle right now.”

Increased lead times of up to 12 months

Typical company car and van lead times are now between six and nine months, according to Hardy.

Jaguar Land Rover has warned leasing companies that lead times are now over one year for 53 model variants. Land Rover Discovery, Land Rover Discovery Sport, Range Rover Evoque, and Land Rover Defender are among the models affected.

“Although these can remain open for quoting and ordering on your systems if you choose, your supplying retailer will not be in a position to accept orders for these derivatives due to extended lead times,” the carmaker said in a briefing note.

Some features have been removed from certain Mercedes-Benz models "from late June production until further notice" to limit delivery delays. Among the features that will no longer come as standard are wireless phone charging, hands-free access to the boot, multibeam LED headlights, and certain audio systems. AMG derivatives are particularly affected.

At the same time, Toyota announced in September a worldwide reduction in production of 40%. The initially planned production of nearly 900,000 cars for this month was lowered to 540,000 units.

There are several Ford models affected, including the best-selling Fiesta. The production of the supermini has been halted since May and further disruptions have occurred since last month. In addition, Ford's plant in Turkey, where the Transit van is built, was also closed this summer. Some models are now being sold without features, such as a sat-nav. A retrofit program is likely to be offered in the future.

Neil Wilson, Ford fleet management director, said: “I think the issue will be around for a while – probably until Q1 next year. It will ease, but there will be challenges going forward and we have to be good at reacting to those challenges. (...) Lead times are different dependent on model; some LCVs are into next year if you order now.”

According to Leaseplan, the key to managing the crisis is being open and transparent. It is very important for manufacturers to be open, and for leasing companies to be open regarding what this means to their customers. The problem will be around for some time, and all we can do is work with our customers and our supply chains to keep those fleets running. 

Today's cars and vans rely on microchips

In the past few years, vehicles have become more dependent on chips, with an average car now requiring 1,000 chips. 

However, telecoms and technology companies are ahead of carmakers when it comes to the demand for more sophisticated and expensive chips, which are more profitable for semiconductor makers.

The pandemic last year was believed to negatively impact semiconductor demand, leading manufacturers to cut orders, which resulted in semiconductor suppliers reducing capabilities.

Contrary to expectations, however, this was not the case. The demand for semiconductors grew by around 15% last year, although manufacturing was concentrated at only a handful of factories. A fire at a semiconductor plant in Japan and storms in Texas compounded the problem.


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