Global chip crunch may cut auto output by 7.1m cars, Delta variant adds stress

Chip assembly and test capacity are concentrated in Southeast Asia, and the spread of the highly contagious Delta variant has hit countries critical to chip assembly lines.

The COVID-19 Delta variant adds extra dangers to the semiconductor shortfall, which could reduce global auto output by 7.1 million vehicles in 2021, according to London-based market research firm IHS Markit.

Since the end of 2020, the pandemic-induced chip shortage has forced auto plants to cease operations and reduce delivery targets.

IHS Markit said it expected the stress weighing on the automotive sector to drag into the first half of 2022.

"Q2 2022 may be the point at which we look for the stabilization of supply, with recovery efforts now starting only from H2 2022," wrote Mark Fulthorpe, executive director of global light vehicle forecasting at IHS Markit.

He went on to say that the semiconductor shortfall would reduce global automobile production by 6.3 million to 7.1 million units.

Even though front-end difficulties caused by a fire at Renesas' Naka factory and a storm in Texas have largely subsided, the back-end process has become more constrained as the Delta variant has ravaged Southeast Asia suppliers, according to the research group.

Chip assembly and test capacity are concentrated in Southeast Asia, and the spread of the highly contagious Delta variant has hit countries critical to chip assembly lines. 

In June, Malaysia, a major hub for chip packaging and testing, imposed a new lockdown. Another manufacturing hub, Thailand, has extended its lockdown restrictions till the end of August.

According to IHS Markit, the process is more labor-intensive than front-end manufacturing, making it more subject to public health regulations.

The projection did not account for Toyota, the world's largest automaker, announcing on Thursday that worldwide auto output would be cut by 40% in September.

Meanwhile, Ford has said that production at a U.S. truck facility will be halted for a week owing to a part shortage caused by a Malaysian delivery issue.