Chip shortage: Honda to halt production in North America this week—Is a "production halt wave" about to hit the auto industry?
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A geopolitical dispute revolving around basic chips is evolving into a supply chain crisis for global automobile production.
On Monday, Honda announced it would cut production by half at its assembly plant in Alliston, Ontario, which produces the Civic sedan and CR-V sport utility vehicle.
According to media reports citing local union president Vito Beato, the production cut will last until Wednesday, with the plant shutting down for a week starting Thursday, and then resuming at half capacity later next week.
Global Times reported that earlier this month, the Dutch government, citing “economic security,” froze the operations and suspended Chinese control of Nexperia, a semiconductor company under China’s Wingtech Technology. This series of actions, which many have called a "pirate plunder" of the 21st century, seeks to seize the capital and technological achievements invested by Chinese companies over many years, sparking widespread international controversy.
This has led to critical chip shortages for some automakers and suppliers, with inventories potentially running out within days. Analysts warn that, because these basic chips are widely used across many vehicle components, the issue likely cannot be simply resolved by temporarily sourcing alternative parts.
Basic chips are difficult to replace quickly
Although the chips produced by Nexperia are not cutting-edge semiconductors, their widespread use in automobiles makes it complicated to find substitute suppliers.
Volvo CEO H. Samuelsson stated:
These aren’t very strategic components, but there are hundreds of them, spread across small microprocessors in the door lock systems, air conditioning controls, speedometers, and elsewhere.
Unlike the semiconductor shortage caused by the pandemic, a Japanese supplier fire, and powerful storms in the U.S. a few years ago, auto executives say this situation cannot simply be addressed by temporarily sourcing replacement chips or adjusting production plans. Samuelsson noted:
This is not an issue we can resolve within our sphere of control.
Data show that Nexperia had about $2 billion in revenue last year, with around 60% coming from the automotive sector.
Impact could spread to other industries
The threat of production disruption is rapidly becoming reality and has already triggered a domino effect within the industry.
Ford COO Kumar Galhotra warned:
The (basic chip supply chain issue) needs to be resolved very quickly to avoid production losses in the fourth quarter. This concerns not just us, but the entire industry.
Bosch, one of the world’s largest automotive suppliers, also said it is preparing to adjust production plans at a German factory, but has yet to implement changes. EU Trade Commissioner Maros Sefcovic stated:
Restoring and securing the semiconductor supply chain is critical for Europe and our global partners.
Barclays analysts indicated in a report this week that, while many suppliers believe there are alternatives for basic chips, the issue is limited inventory. Most suppliers typically only hold two to three weeks of stock. The report stated:
The chip shortage could hit automotive suppliers as early as this week.
If the disruption in the basic chip supply chain continues, the impact could reach beyond the auto sector.
The German Mechanical Engineering Industry Association (VDMA) said the shutdown could affect manufacturers of generators, construction machinery, and agricultural machinery, among other products.
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