Chip shortage is hurting everything from the PlayStation 5 to the Chevy Malibu: CNBC

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Why there’s a chip shortage that’s hurting everything from the PlayStation 5 to the Chevy Malibu

CNBC

A chip shortage that started as consumers stocked up on personal computers and other electronics during the Covid-19 pandemic now threatens to snarl car production around the world.

On Tuesday, GM said that it would extend production cuts in the U.S., Canada, and Mexico until the middle of March. They join a long list of major automakers, including Ford, Honda and Fiat Chrysler, which have warned investors or slowed vehicle production because of the chip shortage.

But it’s not just the automotive industry that’s struggling to get enough semiconductors to build their products. AMD and Qualcomm, which sell chips to most of the top electronics firms, have noted the shortage in recent weeks. Sony blamed the chip shortage for why it’s so hard to get a PlayStation 5 game console.

Chips are likely to remain in short supply in coming months as demand remains higher than ever. The Semiconductor Industry Association said in December that global chip sales would grow 8.4% in 2021 from 2020's total of $433 billion. That’s up from 5.1% growth between 2019 and 2020 -- a notable jump, given how large the absolute numbers are.

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TLDR, people are putting the money they saved from not traveling or going out to restaurants into home entertainment, RV's, boats, and cars.

Demand for durable goods has gone up while supply has gone down, so manufacturers have doubled down to increase supply. It's highly likely the other side of the bullwhip effect will nail them if/when we go back to normal later this summer and consumer spending on entertainment/leisure goes back to normal.

This is partially why there are waiting lists for things like the latest laptop or X-Box.

Automakers in particular have been hit hard. There are waiting list for vehicles that don't normally have them (GMC Yukon, Chevy Silverado HD, and even some some trims of the Japanese-built Toyota 4Runner), and some options had to be scaled back or eliminated from availability while the large companies that build these vehicles resort to sourcing from farther flung suppliers to meet their needs.

The risk is that when things return to normal, the demand for durable goods will also return to normal just in time for production to have finally been increased, creating a potential over-supply problem. The bullwhip effect.