With the bottleneck in the supply chain not budging, Ford Motor Company and General Motors are making plans to produce their own computer chips and bypass foreign companies. This new development is happening in the midst of little availability of semiconductors and other key inputs for the massive American firms.
According to The Wall Street Journal, Ford said it had entered into a strategic agreement with the United States-based chip maker GlobalFoundries Inc. They are being asked to develop chips and form a pact that could eventually lead to joint production in the U.S.
The two companies did not disclose their terms of partnership and they did not say how much they might invest in the future production capacities.
Mark Reuss, the President of General Motors, said that his company was trying to forge deeper ties with chip makers and form strategic partnerships. This move could lead to a co-development of semiconductors and potentially produce them jointly. It could be part of a strategy to reduce variation in the microprocessors it uses in vehicles, Reuss said.
The Wall Street Journal also added that the chip shortage is limiting production and forcing automakers to reconfigure their global supply chains.
The shortage in semiconductors has nearly stopped the output of millions of planned vehicles industrywide in this year alone. Some executives in the business have said that they are taking steps to better utilize their chips.
At the Ford Motor Company, they are the latest example of companies realigning their business models as they try to deal with the pandemic-related disruptions. Many multinational companies were shaken early on by the Covid-19 crisis. There were border closings, local restrictions, and lockdowns that caused chaos. Some of those companies are now deciding on permanent solutions to overcome the chaos.
CNBC noted recently that these kinds of moves are happening beyond just car manufacturers. They said the global computer chip shortage is hurting businesses in multiple sectors: “As technology has advanced, semiconductor chips have spread from computers and cars to toothbrushes and tumble dryers — they now lurk beneath the hood of a surprising number of products.”
Elon Musk, the Tesla chief executive, said earlier in the year that he has never seen anything like the semiconductor shortage.
“Our biggest challenge is supply chain, especially microcontroller chips,” Musk said on Twitter. He then compared what his company was going through to the toilet paper shortage that occurred when COVID-19 hit in the United States.
This is all coming to a head now that shipping vessels trying to deliver consumer goods from Asian markets have remained idle in the Pacific Ocean. The labor shortages in the U.S. have created bottlenecks in the Ports of Los Angeles and Long Beach. Therefore, retailers across the country are short on inventory and can’t meet rising consumer demand.
Experts on these issues do not see an end in sight to this crisis. Paul Meeks, who led Merrill Lynch’s technology fund during the dot-com bubble and currently works as a professor at The Citadel, said recently in an interview at CBNC that the crisis may last until 2023.
“Some of these companies actually will not be able to ship units. And if they can’t ship units, they might disappoint on their earnings,” he explained. “Their stocks are so expensive that they could go down. Not go down a bit, they could go down a lot.”
Meeks continued to describe the situation as a bummer and there was not going to be any relief. He noted that this bottleneck was projected to hit the top and bottom lines of some vendors that are selling the hottest Christmas products.
The silver lining of this crisis may be lessening our dependence on technology produced in Asia, so there is that. Now, American-made can actually be the truth.