On July 1st, Kelley Blue Book asked the question on everyone’s mind: Is the end of the chip shortage in sight? Then it answered its own question with cautious optimism: yes, automotive chip production is catching up— slowly but surely.
After months of dire reports predicting that the automotive chip crises could extend through 2022 and even into early 2023, there is now good news for automakers and their customers. Several automakers have reported that they are starting to feel the shortages easing up and their chip supply stabilizing.
In fact, according to Auto News Europe, many are getting enough chips to produce at full capacity after an almost two-year slowdown created by devastating supply shortages. Mercedes Benz, Daimler Truck Holding, and BMW are among the automakers now receiving enough semiconductor components to produce at full capacity.
Meanwhile, German automakers’ sentiment improved significantly in May, according to an Ifo Institute business survey. The survey showed growing confidence among the automakers that they will be able to raise prices to cope with the soaring costs of raw materials. In fact, the business expectation indicator rose from minus 20.5 points in April to plus 38.0 points in June.
Automakers are cautiously optimistic
As recently as February, automotive chipmakers expected the recovery to take longer. At the same time, General Motors, Ford Motor, and Hyundai Motor predicted the chip shortage would ease in the second half of 2022. The manufacturers appear to have it right— at least for now.
While manufacturers are happy about the chip supply improvement, they aren’t exactly expecting to be fully in the clear just yet. “We are still monitoring it week to week, but up to now basically worldwide, we had no issues running production,” said Joerg Burzer, Mercedes’s head of production and supply-chain management. Supply issues occur “here and there, but nothing compared to what it was like last year.”
“It’s not perfect, but it’s better than last year,” agreed Karin Radstrom, head of the Daimler Truck’s Mercedes brand. “I try to not celebrate too early. We are still monitoring the situation closely.”
“Currently, the situation is a little bit more stable,” said a BMW spokesman, adding that BMW still monitors the chip supply daily and does not rule out the possibility of fresh disruptions in the coming weeks and months.
“We have seen a better supply of components than we maybe anticipated five, six weeks ago,” said Harry Wolters, president of Paccar’s DAF Trucks unit. “So, in the U.S. and Europe, we have been able to increase build rates.”
Will customer demand pick up?
Some of the new availability of chips for automakers stems from the weakening economic outlook and inflation, which has cut into demand for consumer electronics that also use the components. So will lower demand also impact the now chip-rich automotive industry?
As the chip supply improves, automakers are working down their order backlogs, and concerns are turning to how consumer demand will hold up amid accelerating inflation and higher interest rates.
Tesla CEO Elon Musk said his company needs to cut staff by 10% and that he has a “super bad feeling” about the economy, according to Reuters, citing an internal memo.
In fact, not all manufacturers are in the clear when it comes to chip supply. Volvo Trucks, for example, said it’s still seeing limited chip availability and expects an impact on second-quarter production. For now, it looks like automakers are celebrating wins as they happen— but keeping an eye out for a possibly bumpy road ahead. 
