Automotive Chip-Shortage Cost Estimate Surges to $110 Billion

As the semiconductor shortage hobbling the global automotive industry has worsened, its cost as a hit to sales has almost doubled to $110 billion, up from an earlier estimate of $61 billion.

That’s the latest assessment of AlixPartners, a global consulting firm closely monitoring the widening crisis. It also now says the world’s carmakers will lose 3.9 million vehicles of production to the chip shortage this year, more than its prediction four months ago of 2.2 million. That’s about 4.6% of the 84.6 million vehicles that AlixPartners had projected in total production for 2021.

Automakers issued warnings in earnings reports in recent weeks that the chip shortage would get worse before it gets better. Ford Motor Co. and General Motors Co. each predicted the second quarter would be the worst of the calamity, as they are forced to idle factories for lack of the essential components. But the industry isn’t likely to see signs of recovery until the end of the year, according to the AlixPartners assessment.

“It’s still deeply impacting the third quarter,” Mark Wakefield, head of the firm’s global automotive practice, said in an interview. “We don’t really have it getting into a recovery mode at all until the fourth quarter.”

The timing takes on added importance because the chip-related production cuts are driving up prices of new and used vehicles, contributing to higher inflation in the U.S. Another researcher, LMC Automotive, predicts global production will be cut by almost 3 million vehicles in the year’s first half alone.

Read More: Record Surge in Used-Car Prices Is Key Culprit in Inflation

Photographer: Nic Antaya/Getty Images

Ford Chief Executive Officer Jim Farley said Thursday the company is redesigning its vehicles to use the most common and “accessible” chips. It also is planning to boost semiconductor inventory and sign contracts directly with chipmakers, rather than go through an auto supplier.