As Chip Shortage Mounts, Connected Cars Move To The Back Seat

The chips are down for the future of connected cars, with the global shortage of semiconductors showing no signs of abating. Indeed, auto industry executives have reiterated that they expect the supply crisis will likely drag on for months to come. It’s feared that innovation in connected cars will be one of the major victims.

The chip shortage reared its ugly head again this week when one of America’s biggest automakers, General Motors, announced it will have to pause work on its full-size pickup trucks for at least a week due to a lack of components needed to finish those vehicles. It’s a big blow for the company, as large pickups and SUVs are some of its best-selling and most profitable vehicles. The stoppage has already resulted in thousands of incomplete cars and trucks piling up outside its factories each day, The Detroit News and others have reported.

“These most recent scheduling adjustments are being driven by temporary parts shortages caused by semiconductor supply constraints from international markets experiencing COVID-19-related restrictions,” the company said in a statement. “We expect it to be a near-term issue.”

GM’s problem is rooted in the fact that its high-end trucks and SUVs are some of the most connected cars on the road. Semiconductor chips are vital components of systems such as infotainment systems and sensors used to facilitate self-driving cars. Some vehicles are fitted with over a thousand such chips, especially higher-priced models with more advanced safety and entertainment features.

Further Reading: Threat Of Chip Shortages Worries Connected Economy Companies

So it will be the most connected of vehicles that suffer worse — and as production lines screech to a halt, the knock-on effect is that there will be fewer such cars making it into the showroom.

That’s already happening — and it’s causing prices to go up. The Consumer Price Index shows that prices for all cars in June were up 5.29 percent compared to the same month one year ago. As a consequence, used car prices were up even more, almost 30 percent higher than one year ago.

Dealers of used cars have seen strong growth thanks to the shortage of new vehicles. One of the biggest online dealers of used autos in the U.S., CarGurus, said on Thursday (Aug. 5) that its revenue grew by 130 percent in the second quarter compared to the year-ago period. Subscription revenue generated by its online vehicle listings marketplace jumped 80 percent as well, and its net income for the quarter more than tripled to $27.4 million, from just $7.1 million a year ago.

At the same, rival retailer Carvana told investors that it had delivered more than 100,000 vehicles for the three months ending June 30, and also booked its first quarterly profit, but was still clearly cognizant of the industry’s current headwinds.

“I think what’s going on at the industry level is probably most specifically driven by OEM new car manufacturing issues,” said Carvana CEO Ernie Garcia on a conference call. “And I think that is likely the key driver that has led to vehicle price appreciation in both new and used,” he added.

Read more: High Demand For Used Cars Drives Carmax To Record Quarter 

The chip shortage is forcing the automaking industry into a sudden U-turn. For decades, car makers have been accelerating toward more intelligent cars, continually adding newer, more advanced features. Now, they’re suddenly stripping them out, pushing more basic models that lack what many would consider to be standard features.

In May, Bloomberg reported that the Japanese car maker Nissan was shipping thousands of vehicles without navigation systems that were meant to come as standard, simply because it doesn’t have the components and can’t afford to keep them sitting on a parking lot. And Renault has removed an oversized digital screen from the steering wheel of its Arkana SUV models to save on chips.

The issue may throw a spanner in the works of President Joe Biden’s call to get more electronic vehicles on America’s roads. On Thursday (Aug. 5), Biden issued an executive order calling for EVs to make up half of all automobile sales in the U.S. by 2030. It isn’t a mandatory order, but it’s still an ambitious target, given that IHS Markit in May forecast that EVs will make up just 25 percent to 30 percent of all car sales by that year — and he was joined by the CEOs of the country’s three largest auto manufacturers.

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Some experts have previously touted EVs as a possible solution to the chip shortage, albeit one that would take time to implement. Companies such as Tesla have already made public that they’re planning to design and develop their own specialized chips, which would presumably be more efficient and might make it possible for less of them to be used. It’s even been said that Apple is planning the same for its long-rumored “iCar,” if such a thing even exists.

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But EVs could well fall victim to the component crunch before they’re able to save the connected car industry. Tom Blackie, founder and CEO of VNC Automotive, told Just Auto in May that he believes the chip shortage is the most serious threat to the advancement of connected cars seen in a generation.

“We’re concerned that it will lead to a generation of cars that will quickly become incompatible with future mobile phones and connectivity technology,” Blackie said. “It may have knock on effects for the development of EVs and even autonomous technologies.”

Analyst Holger Mueller of Constellation Research told PYMNTS that it will likely take a couple of years for the auto industry to fully resolve its supply problem — but he’s optimistic that these kinds of shortages won’t happen to such an extent again.

“The chip industry has always been a roller coaster, and today’s shortages are teaching car makers a lesson about supply chain planning and resilience,” Mueller said. “If they had kept their chips on order, cars wouldn’t be piling up now. We may certainly see a lot fewer smart cars on the road until these issues are fixed.”