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Automakers are so fed up, they’re just gonna make their own chips
Oct 15, 2021

Automakers are so fed up, they’re just gonna make their own chips

Some car companies are planning to move chip production in-house because of chronic supply chain delays.

As you have probably heard, or maybe experienced, there is a global shortage of computer chips. And carmakers, in particular, have been feeling the pinch. Without chips, they can’t make cars, which means there have been fewer cars available on the lot, and the ones that are there may not be what people want.

Cut to this week. The chief operating officer of Hyundai said the South Korean company is working on a way to develop its own chips. Not many automakers do that, so it’s a topic for “Quality Assurance,” where we take a second look at a big tech story.

Jessica Caldwell is executive director of insights at the car-shopping site Edmunds. The following is an edited transcript of our conversation.

Jessica Caldwell: Obviously, this chip shortage hasn’t been easy for a lot of the automakers, and several have sought out solutions so they’re not in this situation again. Especially as technology evolves, there’s likely going to be more dependence on chips in vehicle production. So I think for Hyundai, looking ahead of this is something that’s not going to happen overnight, but how can we build our own chips to ensure that we’re not in a situation where we just can’t build cars because of it?

Marielle Segarra: Right, it feels like a long-term move. Because right now there’s this shortage, but they must be thinking really kind of far out into the future.

Caldwell: Yeah, it is. And I don’t know if this is just a short-term thing that automakers are focusing on. Because if you think about all the different parts that go into making a car, it’s like, we’re picking this one thing to focus on and produce. And of course, it is the hottest topic right now in the automotive industry, but it may not be two years from now, it could be something else. It is curious to kind of make that long-term strategy based on something that’s happening just right at this moment, and you know, could very well change.

Segarra: Well, I was wondering too. They are based in South Korea, which is home to many other major chip manufacturers. So are they well situated to move into this in a way American carmakers are not?

Caldwell: Yes, I mean, I think so. The amount of influence that the Hyundai Group has within South Korea is fairly immense. So, I think being situated in an area where these type of production facilities are running, or at least are headquartered, would give them a bit of an advantage in this space versus perhaps some of the American automakers. And there is some chip production here. Maybe it’s not as integrated as what it is in South Korea.

Segarra: Do you think it’s a good investment?

Caldwell: I think it would give a Hyundai a leg up because obviously their future is probably a bit more secure. I think having your own source of parts and could potentially even be a profit center at some point if they decide to go into business and give chips to some of the other automakers. I think that’s why there is a focus on this as well, because so many carmakers are planning these [electric vehicle] launches, and having a successful launch is extremely important. You can’t just launch a vehicle and then say, “Oh, just can’t produce them.” I think that that is a disappointing experience from all sides.

Segarra: Yeah. What do you think consumers will make of this? Do you think it’ll have any impact on their decisions to buy?

Caldwell: I think for consumers, I don’t think that they’re necessarily looking at where anyone is producing anything. I don’t think that that necessarily is something of interest. I think for consumers, they know right now they’re having a hard time getting a car. They’re paying more than ever for cars. We know that transaction prices are at all-time records. They’re at parity with [manufacturer’s suggested retail price], which is something we’ve never seen in the automotive industry. So I think that consumers, they just want to get back to the point where they can get a good deal, or at least have a fair price. And whether that involves creating your own chips or not, I don’t think that’s necessarily of importance to them. It’s just getting the product when they want it and not having to wait. Because a lot of consumers right now are having to wait for a vehicle to be delivered, which is not a position that many American car buyers have ever been put in in the past. Usually we go to the dealership, we have a bunch of choices and we pick the one that is closest to everything that we want, and it usually is pretty close. That’s just not happening right now. People are having to compromise in a lot of different areas: colors, options, even brands and vehicle types, SUVs and sedans. We know that there’s a lot of compromises being made, which consumers, at this point, seem like they’re accepting quite well, but that may not be the case in a few months and as time goes on.

Related links: More insight from Marielle Segarra

Tesla’s already going down this road. The company is designing chips for its self-driving cars, which, to be clear, don’t actually drive themselves.

Here’s a story from Wired about Tesla’s chips and how making them gives the company an advantage. And a recent episode of “Marketplace Tech” where we talk about Tesla’s self-driving mode.

Caldwell and I talked about how Hyundai is a South Korean company and that might make it easier to develop or manufacture its own chips. The context here is that just over 20% of the world’s computer chips are made in South Korea. A similar percentage comes from Taiwan. And only about 12% from the U.S. This Bloomberg story explains how the world became so reliant on chipmakers in just a couple of countries.

Meanwhile in the U.S., lawmakers have introduced the CHIPS for America Act — a bill that would create incentives, like an income tax credit, for companies that bought equipment or invested in factories to make computer chips in this country. It’s bipartisan legislation, and the Joe Biden administration supports it, but it’s unclear whether it’ll pass.

Caldwell also mentioned that the need for chips is only gonna grow because the cars of the future, including electric cars, will require more of them.

This story from Scientific American explains how the chip shortage could slow rollouts of new electric cars. It’s not exactly good news for the carmakers or for the environment.

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