HThere is a history of two industries: automobiles and computers. In February, major automakers such as Nissan and Honda began warning shareholders that revenue was likely to fall significantly below expectations. And the reason was not Covid-19, well, not directly anyway: the pandemic had already It depressed sales significantly in 2020. No, the problem was that manufacturers now couldn’t make some cars because they couldn’t get the silicon chips (processors and other semiconductor components) needed to get the vehicles off the production lines. As a result, some factories were temporarily closed or installed for a short time.
Meanwhile, in the same month, the computer industry was looking for a record year. Laptop sales increased 90% year-on-year. Tablet sales had rebounded after a long slump. Even desktop computers and printersFor crying out loud, they were flying from the shelves to the delivery vans. So how did it happen that one industry struggled while another flourished?
The answer is that they were both caught in a perfect storm that one had weathered and the other had not. This storm bought three forces simultaneously to affect an unprepared world: the fragility of a global supply chain on which both industries critically depended, the demands of geopolitics between the United States and China and a pandemic that, more or less of the overnight, it transformed the way much of the industrialized world functioned.
Once upon a time, cars were built in the Henry Ford style, revolutionary in its day, but which involved having large stocks of components to power a relentless mechanized production line. When Japan began to rebuild itself after the war, its main automaker, Toyota, came up with a more efficient way to make them. It came to be called the “Lean machine” And a key feature of it was keeping very small component inventories and instead receiving the necessary parts just when they were needed for a particular assembly task. It was the beginning of just-in-time (JIT) manufacturing and it eventually became the way all cars were made because lower inventories meant lower manufacturing costs, better quality, and higher profit margins.
But JIT is fundamentally based on an efficient, reliable and robust supply chain. If the chain fails, then everything stops. This applies whether the part is a gearbox or a silicon chip, and over the past two decades, chips, particularly in engine management units (EMUs), have become vital to the operation of even the engine. Most humble gasoline or diesel vehicle. We are heading into a future in which automobiles will essentially be computers on wheels. But even now, if the relevant chips don’t arrive, then it’s time for crisis.
The current anguish in the auto industry stems from the fact that chips are not coming, for a number of reasons. One is that there is a global semiconductor shortage as a result of the geopolitical rivalry between the United States and China. This was initially triggered by the decision to exclude Huawei from Western mobile networks. Another is that the computer and mobile phone industries, having seen what happened to Huawei, began stockpiling chips on a large scale.
A third factor is that when car sales began to decline in February 2020, manufacturers reduced its semiconductor orders, leaving relevant manufacturing capacity available to be harnessed by a computer industry struggling to meet an exponential demand caused by the rise in home work. And the coup de grace was that automakers are relatively small beers compared to the electronics industry and thus found themselves languishing at the end of a queue for a dwindling supply. Nissan may be a big cheese in the motor business, but it is a minnow compared to Apple, Samsung, Amazon, Google or Microsoft.
So we, not to mention the automakers, have reached an interesting point. A huge industry built around the idea of propelling ourselves through a series of controlled explosions, which is what an internal combustion engine is after all, needs to make a paradigm shift. VW, Ford, Mercedes, Volvo and others will have to become computer companies.
A few years ago, looking for a metaphor to illustrate the change that is coming, I found two new cars side by side in a French parking lot. One was a Porsche 911, a glorious and beautifully designed triumph of baroque technology. The other was a Tesla Model S. And the metaphor that came to mind? On the left, instead of the Porsche, I saw a beautifully designed Nokia phone, which was great for making calls and texting and not much else; on the right, Tesla replaced the first iPhone, which was basically a networked handheld Unix computer that could also, if necessary, make calls. And we know how that story ends.
Nokia was a very interesting company that made great hardware. But there was always the impression that, at every critical moment in the development of one of their devices, the needs of software, that is, computing, invariably took second place. The hardware guys made the decisions. That’s why the path that led the auto industry to its current silicon deficit did ring some sobering bells.
What i’ve been reading
An interesting New York Times on how Nobel laureate Paul Romer became disenchanted with the tech industry. What took you so long?
The creator’s schedule, the manager’s schedule is a nice essay by Paul Graham on why managers and creators inhabit different universes.
George is Digismak’s reported cum editor with 13 years of experience in Journalism