Chip shortage casts shadow over China's auto industry recovery

SHANGHAI: A global shortage of semiconductors is hitting autos production in China, jeopardising hopes the world's biggest car market might spearhead a recovery in the sector, industry executives warn.

Automakers around the world have had to adjust assembly lines due to the shortages, caused by manufacturing delays that some semiconductor makers blame on a faster-than expected recovery from the coronavirus pandemic.

Volkswagen AG, China's biggest foreign automaker which hopes to sell over four million vehicles in the country, said the situation had not improved in the second quarter.

The German group's China chief, Stephan Woellenstein, told reporters on Sunday it was hard to gauge how much production Volkswagen might lose week to week, or even month to month because of the chip shortage.

"It's really like fire-fighting ... In some cases, we have switched to another chip so we changed suppliers," he said, ahead of the Shanghai auto show which opens on Monday.

"It is like a perfect storm," BMW's China chief Jochen Goller said at Shanghai show, adding the shortage had put pressure on BMW's purchasing. However, he said BMW had not lost production due to the issue, as it made early orders of chips.

William Li, chief executive of Nio Inc, told Reuters on Monday he expected a "relatively big impact" from the chip shortage on its electric vehicle production in the second quarter.

China, where over 25 million vehicles were sold last year, has been a ray of hope for automakers, including Volkswagen and General Motors, after the global industry was hit hard by the pandemic.

But China is also where news of the chip shortage first emerged last year. The problem was worsened by a fire in Renesas Electronics' chip factory in Japan in March.

In 2019, automotive groups accounted for roughly a tenth of the $429 billion semiconductor market, according to McKinsey, with NXP Semiconductor, Germany's Infineon and Renesas among key suppliers to the sector.

Automakers, including Nissan Motor, Ford Motor and Nio have said they have cut production due to the chip shortage.

Li Shaohua, a senior official at the China Association of Automobile Manufacturers, said the chip supply shortage hit Chinese auto production by 5% to 8% in the first two months of this year. It expects the impact to ease from the third quarter.

As a result, the China Automobile Dealers Association said it expects car inventories to continue to drop in China, and that supplies of some models might not be able to meet demand.