The Invasion Of Ukraine Could Make The Chip Shortage Even Worse

The Invasion Of Ukraine Could Make The Chip Shortage Even Worse

Time and again, we’ve seen the fragility of distributed global supply chains. From floods making hard drive prices soar to a bike shortage worsened by COVID-shuttered factories, it seems that broad, international production only adds further points of failure to a process already made precarious by just-in-time inventory. Oh, yeah, cars have been hit once or twice, too. But, just as the global chip shortage was starting to ease, Russia invaded Ukraine — and now the two biggest suppliers of a crucial semiconductor component are fighting in the streets.

The actual production of semiconductors, or what’s known in the industry as teaching sand to think, involves a number of non-sand materials that don’t end up in the final product. One of those materials is possibly the most famous noble gas: Neon. When it isn’t being used for bisexual lighting, neon is needed to operate the industrial lasers used in semiconductor manufacturing. No neon means no chips, and 70 per cent of the world’s neon comes from now-embattled Ukraine.

The Invasion Of Ukraine Could Make The Chip Shortage Even Worse

Automotive News spoke with the Centre for Automotive Research about the neon supply, to a pessimistic response:

“Of course, people will look for alternative sources of neon as quickly as they can — but that’s not something that can just be switched on,” said Carla Bailo, CEO of the Centre for Automotive Research. “Eventually, if semiconductors don’t come, we’ll be right back to where we were last year.”

The semiconductor shortage, a byproduct of the COVID-19 pandemic and manufacturing shutdowns in 2020, has ravaged the auto industry and made life difficult for auto retailers and consumers. According to AutoForecast Solutions estimates, automakers had to cut 10.4 million vehicles out of global production plans last year because of the shortage, with an additional 656,200 axed so far in 2022. AFS expects automakers to cut at least 1.3 million vehicles by the end of this year.

With peace talks between Russia and Ukraine seeming to be unproductive, it’s unclear how long fighting in the region will continue. With effects on global supply chains capable of lingering far after their initial impact, however, another dip in the chip supply could keep car production down for a considerable period of time. If you were hoping for a drop in new car prices, it may not be coming any time soon.