But chips are also in products that are used to track milk production of dairy cows and to make sure produce in trucks stays at an appropriate temperature. A modern car can have several thousand chips, including for the ignition, brakes and entertainment system. This year, the production of $50,000 cars is being held up because of a lack of $1 computer chips.
Right, how did chips lead to a freeze in car manufacturing?
Last year, when the pandemic first hit, automakers estimated that many people wouldn’t want to buy cars, and they cut orders for computer chips. When it turned out that car sales increased, the companies tried to order more chips on the fly. But the chip manufacturers had already moved on. They had shifted production to fill orders for products like phones and game consoles.
Are chip shortages unusual?
No, but shortages are usually confined to one particular type of chip. What’s unusual about this year is there’s not enough of many different kinds of computer chips, because of a combination of some disruptions related to the pandemic and overwhelming demand for more and more chips for everything.
To give just one example, each new smartphone with a 5G internet connection has 100 little components in it called filters that connect to all the different frequencies. That’s 100 computer chips for just a single function.
When will the shortages improve?
Companies are trying to crank out more chips, but it’s difficult to react quickly. Chip companies are also trying to stop customers, including car companies, from ordering double the number of chips they really need just to be sure they get some. But shortages will probably last until 2022 and could get worse before they get better. That’s partly because many scarce chips come from older factories that are hard to upgrade.