Chip Shortage Could Slow Transition to EVs

With extreme weather events ravaging different parts of the world, several countries have pledged to combat climate change by cutting their greenhouse gas emissions. Electric vehicles (“EVs”) are poised to play an integral role in reducing transportation emissions because they do not use fossil fuels, and they produce zero tailpipe emissions. Automakers, EV startups, and technology companies have invested billions of dollars in developing new electric vehicle models. However, the transition from internal combustion engine (“ICE”) cars to zero-emission vehicles could be held back by the worldwide chip shortage.

When the coronavirus first struck and left the world in a panic, most countries closed their borders and issued lockdown orders. Chipmakers reduced production or shut down their factories altogether, halting the manufacturing of computer chips for months. Even after automakers began production again and started placing orders for chips, supply was limited, partially because chip makers had turned their attention to consumer electronics in the interim. The resultant chip shortage sent shock waves across the auto industry, forcing car makers to hold back vehicles that were ready to be released into the market.

Due to their nature, electric vehicles were especially affected. On average, an EV requires nearly twice as many computer chips as an ICE car, says Commerce Secretary Gina Raimondo. During a Michigan trip to raise support for the $52 billion Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) for America Act, the Raimondo said that achieving President Joe Biden’s electrification goals will depend on whether the U.S. market is able to develop its own semiconductors. Currently, most of the world’s supply of semiconductors is produced in Asia, specifically Taiwan and China.

The chip shortage is already impacting America’s nascent electric vehicle industry. For example, Ford Motor Co. announced in August that it would pause the rollout of the Mustang Mach-E for several weeks, and General Motors shut down its Detroit facility, which manufactures the Bolt EV. Rivian, an EV startup that recently went public and raised more than $10 billion in its IPO, has cited the semiconductor shortage as a reason for its slow output. According to a recent study by IDTechEx, electric cars require more than double the number of semiconductors mainly because they use more power electronics.

Fortunately, says Michigan-based automotive forecaster Alan Baum, EVs that are designed on electric vehicle-only platforms may require more chips but their design allows for efficient use of semiconductors. Tesla, for instance, hasn’t been as affected by the chip shortage because Tesla EVs have a centralized computing hub, reducing the need for several chips in various vehicle systems.

This chip shortage means that players in the electric vehicle space such as Kandi Technologies Group Inc. (NASDAQ: KNDI) need to get creative and find ways around this bottleneck, otherwise they risk costly delays in this fast-paced industry.

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