The global automotive production cuts brought on by the chip shortage may continue into 2024 or even further.   

This is already an optimistic estimation.

How should automakers cope with the challenge?

With the rise of new energy and smart vehicles, the automotive chip market is now struggling with a capacity shortage of around 10%.

Against the backdrop of the global pandemic, geopolitical tensions, and disrupted logistics, the issue still persists.  

In the short term, it is necessary to source chips from around the world at prices that fluctuate reasonably, and to ensure end-to-end pickups from the supplier. 

Secondly, automakers should reallocate their resources internally, suspending some of the low-end, lower-margin model lines to ensure chip demand for the high-end, higher-margin vehicles is met, so as to maximize their profits. 

In the long run, automakers need to redesign their models, and have backup suppliers to prevent single-sourcing from one location or supplier. 

For less available critical spare parts, a strategy shift from Just-In-Time to Just-In-Case is required, in order to build resilience and reserve capacity.

The supplier system also needs to be reinvented, shifting from a centralized model to a highly distributed model.

Moreover, automakers can solve the problem for themselves at source, by either working with suppliers to develop new chips, or seeking to produce automotive chips independently.

Since the pandemic, we have worked with many automakers and parts suppliers, both world-renowned incumbents and new challengers, to help them optimize their global supply chains and emergency procurements.

We also work with them closely on new model optimization, specific supplier sourcing, and lifecycle management, offering our clients the support they need.

Hello, my name is Junyi Zhang, Partner at Oliver Wyman.

Together, let’s accelerate breakthroughs.