Chip Shortage Weakens Tesla Competition

A new report from AutoForecast Solutions says the number of vehicles lost — not produced — will hit 7.1 million. The firm estimated with the recent 107K in losses — 71,300 in North America — the global industry has lost 5.96 million vehicles by the end of August. In May, According to AutoForecast Solutions and reported by Automotive News, Ford had removed a total of 324,616 vehicles from its production schedules in North America so far. However, the remainder of the Detroit Big Three aren’t far behind, as GM has lost 277,966 units to the semiconductor chip shortage, and Stellantis has been forced to cut 252,193 vehicles from its North American production schedule so far. The shortage is hitting car makers globally (Europe, Asia and Americas).

The chip shortage is making it tougher to make electric vehicles. A Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips.

This means Ford can choose to make one Mach E or ten Ford Focus or ten other ICE cars. Ford and the traditional automaker make more money when they sacrifice EV production. Tesla makes its money from EVs. Tesla sacrifices Powerwall fixed storage to get more chips for more profitable cars.

GM, Ford and Volkwagen have said that they are losing about $4000-5000 for each electric car that they make. They expected to scale and reach profitability with EVs around 2025-2030 depending on how things develop and which carmaker is talking. An EV only becomes worth it if they do not have to pay another carmaker like Tesla the penalties in Europe and elsewhere for selling an ICE SUV, truck or car. $5000 loss on selling the EV, but gain $10000 from selling the SUV and do not pay $7000 per car penalty for selling the SUV. The EV offsets the penalty. If they just sell the EV they have to pay Telsa or another EV to buy EV credits.

Tesla has been able to write firmware to certify over two dozen new chip vendors and suppliers. Tesla still grows production to records but might have lost 10-15% of growth (going from 500k last year to 850k this year, might have been 1M this year without chip problem). Tesla has more software coders and they have better coders. This advantage is playing out with fast internal development of autopilot and full self driving software. It is also helping Tesla to overcome the chip shortage.

Ford and others have cut production of regular cars and EVs by 30-50% in Q2 and Q3. Ford’s production has been stymied even further with a recent fire at a Renesas chip plant in Japan. According to Blue Oval executives, 75 percent of Ford’s 50 percent loss in Q2 production can directly be attributed to the fire, which nine of the automaker’s Tier 1 suppliers rely on.

CNBC reports that VW, Ford, Daimler and other carmakers fear the chip shortage could persist to 2024.

Ford Europe’s Herrmann, meanwhile, estimates the chip shortage could continue through to 2024, adding that it’s difficult to pinpoint exactly when it will end.

[VW CEO Herbert] Diess said he believes the chip shortage issues will start to dissipate as countries reduce Covid-19 transmission, but he expects there to be a general shortage of semiconductors for some time. “We will face a general shortage of semiconductors because the internet of things is growing so fast so there will be constraints which we will try to manage,” he said.

The chip shortage has quickly grown from what many executives expected to be a short-term problem during the first half of the year to one that some anticipate will linger well into 2022.

GM last month said it expected production to be down by about 100,000 vehicles in North America during the second half of the year compared with the first six months. The company does not release production data, but it sold about 1.3 million vehicles during the first half of the year in North America.

GM is shutting down eight plants for two weeks.

Honda said it sold 91,694 vehicles in China in August down 38.3% from a year earlier due shortages. Nissan said it sold 113,166 cars in China in August, down 10.6.

Used car prices are up 40% because of the overall shortage of cars.

Tesla should be able to grow production from Austin and Berlin up to 4-6 million cars per year over the next 2 years. There can be further expansion in Shanghai. The Chip shortage reducing competitor production by 7 million cars per year out towards 2024, is giving a huge and timely opening Tesla to expand unit volumes beyond all but Toyota and VW.

GM was the number 3 US electric car in 2020 the Bolt, has to recall every bolt ever made. This was because of bad LG batteries. Same for Hyundai. Tesla sells 80% of the non-recalled EVs in the USA.

Volkswagen is recovering from a 2019 China insurance company crash test failure for its Passat. Volkswagen sales of the ID3 and ID4 electric car are disappointing.

Any EV competitor that is going to scale to 5 million EV cars per year has to get 1.5 billion chips per year. They will have to get 250 GWh to 500 GWH per year of batteries. They will also have to have the equivalent of ten Tesla Fremont factories.

Tesla has giant casting machines that will stamp out the front and rear body of vehicles in one piece. Tesla had to invent new metal alloy to make this work. This advance saves 30% of the space in factories. This means Tesla can add 50% more production in newly available space.

Tesla has the factories and battery supplies that will enable this expansion by 2024. VW is talking about 240 GWh/year of battery factories by 2030.

If the competitors are no factories, no chip, and no batteries then there can be no volume production of competing electric cars.

Here is a link to the July, 2021 year to date global EV car sales.

The top-selling models year-to-date:

Tesla Model 3 – 18,811 and 262,557 YTD
Wuling’s Hong Guang MINI EV – 30,706 and 212,516 YTD [$4000 to 5000 car price]
Tesla Model Y – 14,660 and 153,062 YTD
Volkswagen ID.4 – 10,654 and 49,153 YTD
BYD Han EV – 5,593 and 44,260 YTD
Li Xiang One EREV – 8,589 and 38,743 YTD
Changan Benni EV – 8,701 and 37,879 YTD
Volkswagen ID.3 – 5,518 and 36,597 YTD
GAC Aion S – 5,502 and 35,958 YTD
Hyundai Kona Electric – 4,656 and 35,889 YTD [all recalled]
Total: 480,506 and 3,039,961 YTD [includes plug in hybrids.]

SOURCES CNBC , Reuters, Inside EVs, AutoForecast Solutions, Autonews, EconomicTimes India
Written by Brian Wang, (Brian has shares of Tesla)

20 thoughts on “Chip Shortage Weakens Tesla Competition”

  1. If Tesla gets into chip fabs, they might put Intel and Samsung out of business. Elon Musk finds a clever way to make the chips 1000 times smaller while producing a much higher yield, and using pocket lint as the semiconductor.

  2. For a few years now we've seen the "Tesla Effect". People won't buy a new Ford but will rather keep their old car a little longer so they can save up for a Tesla. Nobody is saving up for a Buick.
    Auto dealerships have cars galore parked out front that nobody is buying. Tesla is backlogged.

    I know which company I'd rather own stock in.

  3. Considering Toyota, the only lean JIT manufacturer to properly see chips as being a strategic problem and specificially stockpiling those before the mess, still wouldn't commit to outright owning Renesas when they had the chance (though to be fair, letting the japanese government pick up the bill and effectively nationalizing it wasn't a bad choice), I don't think Tesla will buy a fab.

    Even Toyota is running out of chips now as they've burned through their stockpile.

    Tesla's recent dealings with STmicro for Starlink, and specifically the german fabs, suggests a strategic alliance though.

  4. No one is going to bankruptcy yet… We will see how the new batteries and the models that everyone is going to churn at very soon will change the market. As usual in cases like these chip shortage will be filled very quickly as companies will be able to create emergency capacity in ways that are not anticipated now.

  5. GM and Hyundai have to replace $11-13k batteries for every EV they have made. Hyundai was #9 in the world. GM was second in the US behind Tesla. Ford down 33% on all of its cars. The Legacy car makers are barely fending off bankruptcy now. GM came out of 2009 bankruptcy. $100-260 billion in debt for each of the big car companies. by 2024 IF or when they get their act together, Tesla will be making 5+ million cars per year with better 4680 batteries, even better AI and front and rear castings. $50B+ revenue per quarter and the $25K EV heading to even bigger production.

  6. If and when they do, it is usually a good thing, leading to greater innovation, greater accommodation of the desires of customers and increased competition. And the total valuation of all the small companies likely will be quite a bit bigger than the one large one.
    It is really a shame that the Fed has not broken up more companies.

  7. "A Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips."

    It is important to note the talking about 300 or 3000 identical chips. There are many different types of chips. So a singele vehicle can have a handful of different chips or hundreds or even a 1000 different chips.

    "Tesla has been able to write firmware to certify over two dozen new chip vendors and suppliers. "

    The chips aren't just different in the firmware or software they use. They often multiple difference in how they are wired or connected to the rest of the car. So tesla likely has to make multiple change to a circuit when just one chip is replaced with an alternative.

    The real equation about this shortage is is what is causing it. Many a blamming it on Covid. Which may or may not be correct. Is it caused by multiple car manufactures using the same chips? or is it cause by one manufacture growing rapidly and consuming all the chips that would have normally gone to other manufactures?

  8. So in 9 years time, when Tesla is producing 20 million EVs, has a robotaxi fleet and is beginning to sell the humanoid robots, will the governments force Tesla to splitt inte several companies? Just for being too big and powerful?

  9. Actually, I would hope that Tesla would buy or build a tier 2 fab (28 nm or so). But I dont read anything about it, and given that it takes at least 2 years to build one…. it doesnt look like its in the cards…

  10. I just did a one off industrial control project and did the board as an attachment to an MCU development board, similar to Arduino shields. The shortage is real but varied. Some things are fine, others have 52 week lead times.

  11. Agree. The car market isn't yet defined by luxury EV cars.

    Cheap, mass produced ones define the car markets worldwide.

    But this is where the competition is also struggling right now. Even cheap ICEs need lots of microprocessors, and those are in a drought.

    Doesn't mean everyone will buy Teslas, given they are too expensive for many countries. People will most likely turn to used ones.

  12. Will Tesla not buy/built a chip fab for all the cars and robots that are coming and protect from supplier failure and interference? Seems likely. All those small robot motors/AI will also trickle down to other tool/appliance opportunities.

  13. A demonstration of exponential growth vs lineal expectations?

    Tesla appears to be in another league in terms of integration and features, up to the point it's difficult to see how the rest can compete. Similar to what happened with Apple's iPhone vs the other smartphones, which were severely outclassed once the slate form factor and touch screen proved themselves.

    Seems the future car makers need to be high tech R&D places and become cloud based, or fail hard to satisfy consumers in the new SDC world.

    Waymo et al seemed to want to join the dots and give generic cars self driving abilities, but actually, the integration may need to be from the design and at the factory level to give the same results.

    You can turn a regular car into a poor SDC for a lot of money, or you can build them with those abilities embedded since the very beginning, and grow them with gradual improvements and patches.

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