- Car factories worldwide were poised to slow output or shut down over a shortage of microchips caused by a trade dispute between China and the Netherlands
- China has agreed to allow chips to be exported for cars, at least temporarily averting the crisis
Car factories worldwide will operate normally for a little longer thanks to a détente in a microchip dispute between China and the Netherlands. The news comes shortly after the spat caused its first real consequences, with Nissan announcing a slowdown in manufacturing of its most popular product, the Rogue compact SUV.
CNN reports, “China has agreed to allow the export of chips critical to auto production, averting widespread shutdowns that had been predicted by the industry.”
The country threatened to pause chip exports after the Dutch government took control of a microchip company owned by a Chinese conglomerate.
That had automakers worldwide seeking alternative supplies of chips — alternatives that largely don’t exist. Reuters reported Tuesday that Nissan had plans to cut Rogue production due to a shortage of chips. It looked like the first of what could be many dominoes to fall.
The New York Times explains, “Some industry insiders have drawn parallels of the current situation to the shortages after economies around the world shut down during the coronavirus pandemic,” sending new car prices soaring.
Cars Need a Unique Type of Chip
- High-tech products the world over use powerful microchips, but cars tend to use simple ones
- Few companies still build the older, lower-tech chips that dominate car production
The crisis began in mid-October, when the Dutch government seized control of Nexperia, a company that provides more than 40% of the microchips used in global auto production.
The government of the Netherlands reacted to concerns that the company’s Chinese owners were going to shut down chip production in Europe and move it home to China. China increasingly controls much of the global microchip trade, creating a possible chokepoint that could let it influence worldwide industries.
In response to the move, China threatened to stop the export of the chips.
There is a global microchip industry, but today’s cars need a highly specific product. The chip industry doesn’t produce many of these cheap, low-power microchips based on older technology.
Most high-tech industries today require complex, high-powered chips that can perform millions of functions simultaneously. Devices like phones and laptop computers run off just one or two of those. Cars, however, need dozens of weak, older-tech chips that each control just one or two functions, like raising and lowering windows or controlling engine timing.
Nexperia is one of the few companies still making those, which makes it a crucial cog in the global auto industry.
Automakers Moving Toward Newer Tech
- In the long run, many automakers plan to move to more powerful, more common chips
The auto industry has a long-term solution to the problem, if not a short-term answer.
Startup electric vehicle (EV) builder Rivian has pioneered a leaner design approach, which uses just a handful of powerful chips like those found in phones to control all aspects of a car’s operation. Giant Volkswagen made a $5 billion investment in Rivian to get access to the technology for its own future designs.
But, today, building most cars remains dependent on a plentiful supply of 1980s-style microchips. Global trade in those will not pause in the short run. But China and the Netherlands are still meeting to iron out their differences, so the situation could change.
