Dividends and Auto production upended by global semi-conductor shortage

It used to be when you looked at your vehicle you would think about the parts – it needs steel, rubber, or relatively basic commodities to operate. Now when you access the newer vehicles on the road they increasing dependent on electronics to operate. The auto mobile companies in their planning of logistics never thought their biggest problem would be demand for PlayStations.

In an article by Jack Ewing and Don Clark of the New York Times News Service, strong demand for gaming stations, personal computers and other electronics has caused a shortage of semi-conductor chips for car makers. All the large car companies – Toyota, Fiat Chrysler, VW, Ford and GM have announced plant closures because of the shortage of semi-conductor chips.

When COVID-19 hit, auto companies slashed orders for chips expecting demand to down and this was good for the semi-conductor companies – demand for laptop computers, webcams, tablets and 5G smartphones went up. When people started working from home, companies had to upgrade their systems fueling more demand for semi-conductor chips.

The good news for the auto companies is sales came back faster than expected, the bad news is it takes semi-conductor chip companies 6 to 9 months to realign production. New cars have about 100 chips per car.

Companies which supply chips include: Infineon Technologies, NXP Semi-conductors NV, Renesas Electronics. The simpler 8 inch chip has been replaced by the 12 inch chip in the most modern plants. It is easier to ramp up production in the 12 inch chip than the 8 inch according to Syed Alam, global leader for Accenture’s global semi-conductor consulting practice. It takes 20 to 25 weeks from the time new orders are placed for chips to be produced and work through the supple chain to reach cars.

Linking to dividend paying stocks, we are all depended on one another in ways which many of us never realized. If something happens to the supply chain, then it has a ripple affect which even under the best expectations and planning does not work out. In your investments, do you have a understanding of the supply system for your companies?

There are more questions than answers, till the next time – to raising questions.

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