Sunday, December 5

Global chip shortage threatens Mexico auto industry rebound

A worker at an auto plant in Mexico, in a file image.
A worker at an auto plant in Mexico, in a file image.Mireya Novo / Cuartoscuro

The tiniest part of the vehicle has become a major headache for the automotive industry. Since the beginning of the year, there are not enough microchips to meet market demand and the situation has worsened. Despite being one of the world’s largest auto producers, Mexico lacks its own chip factories and is dependent on imports. Essential for various parts of the automobile, the global shortage of these products threatens the recovery of a sector badly hit by the economic crisis.

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The year looked good compared to 2020, dose horribilis for a key industry that represents around 20% of Mexico’s manufacturing GDP. After a 34% drop in production during the first seven months of 2020 compared to 2019, the country assembled 1.8 million vehicles between January and July of this year, according to the latest data from the National Institute of Statistics and Geography (Inegi ). The figure remains below 2019, but is 20% higher than the same period in 2020.

However, the alarm has sounded in July. Along with a low maritime transport capacity, the lack of chips or semiconductors, used in control systems such as the speedometer or proximity sensors, begins to weigh on the recovery. Production fell to just over 221,000 vehicles, the lowest figure so far this year and 26% lower than in July 2020, when factories were barely reopening after lockdown. “We have been advancing month after month, but this drop worries us. It is a clear sign that the lack of semiconductors is affecting ”, says José Zozaya, president of AMIA, the industry association. “The problem has been growing instead of diminishing.”

Mexican factories have responded with technical stoppages or shift reductions. Volkswagen decreased its production by 52% and General Motors, another 53%, according to AMIA. The US company’s plant in San Luis Potosí stopped activities in mid-July and plans to resume in the last week of August. BMW has also had to make adjustments. “We are closely monitoring the situation and maintain constant communication with our suppliers,” says the company. In total, nine assemblers registered a lower production compared to July 2020 and only four an increase.

The chip shortage is the result of consumer priorities shifting by the pandemic. With the rise of telecommuting and mobility restrictions, vehicle sales worldwide plummeted and, with it, demand for industry chips. In 2019, automakers bought semiconductors for 41,000 million dollars, but the pandemic turned things around. Instead of growing around 6% compared to 2019 as expected, the sector’s demand contracted by almost 10%, according to a study by consulting firm McKinsey.

With the automaker on the ground, the chipmakers reinforced their commitment to a sector that is now experiencing its golden moment, that of electronic devices. Demand for computer semiconductors increased 11%, versus the forecast of zero growth before the pandemic, according to McKinsey. For other wireless devices such as cell phones, which already accounted for the majority of purchases before the health crisis, it grew 10%, six points more than expected.

This turn has hurt the assemblers. Just when they wanted to speed up their production they don’t have what they need. “The automotive industry is not the main customer of microchip producers and, therefore, we are not in their priority of attention,” explains Guillermo Rosales, president of AMDA, the association of vehicle distributors. In addition, for efficiency reasons, manufacturers do not usually keep inventory; They buy what is necessary to carry out immediate orders. “Plants work on a model of just in time [justo a tiempo], which implies not having large product warehouses ”, explains José Zozaya, from AMIA.

Although Mexico already has state-of-the-art assembly plants, the country does not produce its own chips. “The installation of a new factory requires at least three years. It is not so easy to make the investment decision, ”says Rosales, from AMDA. The country has to import them, therefore, from large foreign suppliers, mainly from the United States and Asia. In 2020, Intel, Samsung and the South Korean SK hynix concentrated 33% of a market that that year sold 466,000 million dollars in merchandise, according to the consultancy Gartner.

The Mexican industry expected that by this time the supply would have normalized, but the problems continue and now they foresee that the solution will be delayed until the beginning of 2022. “It may affect that we do not meet the sales expectation,” says Rosales. Their hopes are pinned on chipmakers increasing production while, at the same time, demand for electronics declines with the return to offices and the end of mobility restrictions. “We would like to surpass the 2020 numbers and hopefully reach 2019,” says Zozaya, “it looks difficult.”

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