Taiwan Semiconductor slips as Intel announces plans to spend $20 billion on new chip factories

FILE PHOTO - A logo of Taiwan Semiconductor Manufacturing Co (TSMC) is seen at its headquarters in Hsinchu, Taiwan August 31, 2018. Picture taken August 31, 2018. REUTERS/Tyrone Siu
A logo of Taiwan Semiconductor Manufacturing Co (TSMC) is seen at its headquarters in Hsinchu.

Taiwan Semiconductor’s stock slipped on Wednesday after Intel announced plans to spend $20 billion on two new chip factories in Arizona.

Intel’s new CEO Pat Gelsinger laid down plans to directly compete with Taiwan Semiconductor and its South Korean rival Samsung in the foundry business creating chips for companies around the world.

“Intel is back. The old Intel is the new Intel,” Gelsinger said in a March 23 virtual presentation. “We’re going to be leaders in the market and we’re going to satisfy the new foundry customers, because the world needs more semiconductors and we’re going to step into that gap in a powerful and meaningful way.”

Intel is taking advantage of incentives from both federal and local governments to help roll out its new factories after President Biden signed an executive order to bolster US supply chains amid a worldwide semiconductor shortage in late February.

Intel’s Arizona factories will create over 3,000 permanent high-tech jobs, 3,000 construction jobs, and roughly 15,000 local long-term jobs for the region.

Taiwan Semiconductor shares continued their more than month-long fall on Wednesday after the Intel news broke. The stock is down roughly 20% from February 16 record highs.

In a note to institutional investors on Wednesday, Wedbush’s Brad Gastwirth said he believes TSMC’s fall on the Intel news is overdone.

The Chief Technology Strategist said he sees Intel’s new foundry business as an expensive move that could have an “elongated” production timeline, not producing any revenues for Intel until 2022 or 2023.

Taiwanese Economy Minster Wang Mei-hua added a similar opinion when leaving parliament on Wednesday, saying Intel’s $20 billion investment wouldn’t be a challenge to Taiwan Semiconductor and other Taiwanese chip makers, Reuters reported.

Taiwan Semiconductor has enough of its own problems without Intel’s move into the foundry business.

A water shortage has threatened production at TSMC for over a month now, and Bloomberg reported on Wednesday that the water supply to chip makers has been cut entirely as a drought continues to lower water reserves in the island nation.

Taiwan Semiconductor traded down 4.13% as of 9:58 a.m. ET on Wednesday.

TSM chart 2
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Stellantis to delay production of its Ram 1500 Classic pickup trucks due to global chip shortage

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  • Production at Stellantis assembly plants in Michigan and Mexico will be impacted, the statement said.
  • The pandemic caused a disruption in the supply chain of semiconductor chips used in cars and electronics.
  • The computer chips make up around 40% of a new car’s cost, according to a report by Deloitte.
  • See more stories on Insider’s business page.

Stellantis will delay the production of its Ram 1500 Classic pickup trucks due to the global chip shortage.

The company is currently building the trucks but delaying the completing production for a “number of weeks” at the Warren Truck Assembly Plant in Michigan and the Saltillo Truck Assembly Plant in Mexico, a company spokesperson said in a statement to Insider.

The truck will be completed when the chips become available, the statement added.

“We continue working closely with our suppliers to mitigate the manufacturing impacts caused by the various supply chain issues facing our industry,” the statement said.

Earlier in March, Stellantis CEO Carlos Tavares said that problems caused by the chip shortage may not be fully resolved by the second half of 2021, Reuters reported.

Stellantis is the world’s fourth-largest automaker created by the merger of Fiat Chrysler Automobiles and PSA Group.

The pandemic caused a disruption in the supply chain of semiconductor chips used in the manufacturing of cars and electronics. The chips are used in vehicles’ navigation systems, Bluetooth, and collision-detection systems and make up around 40% of a new vehicle’s cost, according to a report by Deloitte.

Due to the global computer chip shortage, a production slowdown in the auto industry surfaced earlier this year as some car companies changed their manufacturing plans while others searched for new suppliers.

On Thursday, Ford said in a statement that it will build F-150 trucks and Edge SUVs in North America without specific parts including some electronic modules that contain semiconductors.

The impact extends to other carmakers such as Volvo that decided to adjust its production plans temporarily for some periods in March while General Motors said it will lengthen its production cuts at three North American plants.

Automakers could lose as much as $61 billion in revenue due to the chip shortage, Bloomberg reported citing estimates from Alix Partners.

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Tesla slips as report says the EV maker will idle Model 3 line at its Fremont factory for two weeks

FILE PHOTO: The Tesla factory is seen in Fremont, California, U.S. June 22, 2018. REUTERS/Stephen Lam
FILE PHOTO: The Tesla factory is seen in Fremont

Shares of Tesla slipped as much as 4% on Thursday after a report said the EV maker will idle the Model 3 line at its Fremont, California factory for two weeks.

Staff on the Model 3 line in Fremont were told production would be shut down until March 7 without an explanation, according to unnamed Bloomberg sources.

The workers were told they would be paid through the end of this week, but would not be paid through next week, and were advised to take vacation time if they had it.

Analyst Dan Ives of Wedbush Securities said the shutdown is most likely “chip shortage driven” in a note to clients Thursday morning. Ives said he was “not overly concerned” with the supply chain and factory disruption and argued it won’t change “the overall delivery trajectory for 1Q and 2021” for Tesla.

Automobile manufacturers have been facing a severe semiconductor shortage over the past few months.  

Semiconductors, also known as chips, are used in everything from cell phones to fighter jets, and rising demand caused by a 5G explosion, cryptocurrencies’ rise, the EV boom, and a number of other factors are leading to serious supply constraints.

Earlier this month the supply issues forced GM to shut down three of its plants, and Ford and GM are expected to lose roughly $4.5 billion due to the shortage.

Despite the shortage, Dan Ives said he still believes the “$5 trillion EV market over the next decade will have many winners around the globe especially with a Biden-driven green tidal wave on the horizon in the US.” Ives sees unit sales out of China driving the Tesla story going forward, instead of bitcoin or a chip shortage.

Still, Wedbush’s Chief Technology Strategist Brad Gastwirth said in a note to institutional investors that he believes the chip shortage will “last longer than what some may believe,” even with a $37 billion relief bill that could come out of Congress.

On Wednesday President Joe Biden said he would seek $37 billion in funding to help supercharge the US semiconductor supply.

“I’m directing senior officials in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall,” Biden said. “Congress has authorized a bill but they need $37 billion to make sure that we have this capacity. I’ll push for that as well.”

Despite this push, Wedbush said they “do not see these actions improving near-term shortages or even creating an environment less susceptible to the current supply/demand imbalance.”

This bearish news for Tesla comes as the company continues to cut prices on vehicles across its lineup and around the globe (1) (2).

Tesla traded down 5.53% on Thursday as of 1:23 p.m. ET.

tsla chart
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Tesla slips as report says the EV maker will idle Model 3 line at its Freemont factory for two weeks

FILE PHOTO: The Tesla factory is seen in Fremont, California, U.S. June 22, 2018. REUTERS/Stephen Lam
FILE PHOTO: The Tesla factory is seen in Fremont

Shares of Tesla slipped as much as 4% on Thursday after a report said the EV maker will idle the Model 3 line at its Freemont, California factory for two weeks.

Staff on the Model 3 line in Fremont were told production would be shut down until March 7 without an explanation, according to unnamed Bloomberg sources.

The workers were told they would be paid through the end of this week, but would not be paid through next week, and were advised to take vacation time if they had it.

Analyst Dan Ives of Wedbush Securities said the shutdown is most likely “chip shortage driven” in a note to clients Thursday morning. Ives said he was “not overly concerned” with the supply chain and factory disruption and argued it won’t change “the overall delivery trajectory for 1Q and 2021” for Tesla.

Automobile manufacturers have been facing a severe semiconductor shortage over the past few months.  

Semiconductors, also known as chips, are used in everything from cell phones to fighter jets, and rising demand caused by a 5G explosion, cryptocurrencies’ rise, the EV boom, and a number of other factors are leading to serious supply constraints.

Earlier this month the supply issues forced GM to shut down three of its plants, and Ford and GM are expected to lose roughly $4.5 billion due to the shortage.

Despite the shortage, Dan Ives said he still believes the “$5 trillion EV market over the next decade will have many winners around the globe especially with a Biden-driven green tidal wave on the horizon in the US.” Ives sees unit sales out of China driving the Tesla story going forward, instead of bitcoin or a chip shortage.

Still, Wedbush’s Chief Technology Strategist Brad Gastwirth said in a note to institutional investors that he believes the chip shortage will “last longer than what some may believe,” even with a $37 billion relief bill that could come out of Congress.

On Wednesday President Joe Biden said he would seek $37 billion in funding to help supercharge the US semiconductor supply.

“I’m directing senior officials in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall,” Biden said. “Congress has authorized a bill but they need $37 billion to make sure that we have this capacity. I’ll push for that as well.”

Despite this push, Wedbush said they “do not see these actions improving near-term shortages or even creating an environment less susceptible to the current supply/demand imbalance.”

This bearish news for Tesla comes as the company continues to cut prices on vehicles across its lineup and around the globe (1) (2).

Tesla traded down 3.28% on Thursday as of 11:09 a.m. ET.

Tesla chart
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Here are some of the car models most likely to be in shorter supply due to the global chip shortage

Car Dealership
New Chevys for sale fill the lot at Raymond Chevrolet in Antioch, Illinois, July 17, 2014.

  • Car dealerships are already reflecting the slowdown in manufacturing due to the global chip shortage.
  • Shoppers may see higher prices and lower availability of certain car models.
  • Car companies began halting production in January and expect to lose billions this year.
  • Visit the Business section of Insider for more stories.

A global shortage of computer chips has caused shutdowns at several automotive manufacturing plants – and car dealerships are already reflecting the shortage.

Car shoppers can expect to see an impact in the availability of certain car models due to the chip shortage, as well as a price increase, according to Cars.com executive editor Joe Wiesenfelder. Dealerships may also be less likely to offer deals as supplies dwindle.

“Consumers in the market of considering buying a car should shop now because choices and prices could worsen over the next two quarters,” Wiesenfelder told Insider. 

Car companies began halting production at manufacturing plants in North America in the beginning of January.

Automotive companies stand to lose billions of dollars due to the disruption in supply. Alix Partners told Bloomberg car companies could lose over $14 billion in the first quarter and about $61 billion overall in 2021. Though, Wiesenfelder said the industry could make up for the cuts by the end of the year.

Semiconductor chips have become an essential part of the manufacturing process for vehicles. The chips are used in navigation, bluetooth, and collision-detection systems and account for about 40% of a new car’s cost, according to a report from Deloitte.

The lack of chips has forced automakers to prioritize production of their higher-priced and more-profitable models.

Here are some of the models Cars.com said may see price increases or limited availability.

Toyota has already started increasing prices

2014 2017 toyota tundra crewmax
Toyota Tundra CrewMax.

The Toyota Tundra was one of the first cars to see a halt in production.

Cars.com said the Tundra has seen a drop in inventory of almost 27% for the month of February. Some Toyota models have already demonstrated price increases, including the Tacoma, which has gone up about $584 or 1.6%, despite only a 4% decrease in inventory, according to Cars.com.

Many Japanese carmakers are seeing an impact. Honda was one of the first car companies to warn of computer chip shortages, according to Bloomberg.

The Japanese carmaker has slashed production at several major manufacturing plants. In particular, shoppers can expect to see some pressure on the Honda Accord, Civic, Insight, and Odyssey, as well as the Acura RDX.

Nissan has had to adjust production in both Japan and North America. A spokesperson told Insider the company is continuing to assess the long-term impact of the chip shortage. For now, the models that have seen slowdowns for the carmaker include the Nissan Altima, Frontier, and Titan.

In February, Subaru reported it planned to cut its production plan for 2021 by about 58,000 cars. The models impacted by the cut include the Subaru Ascent, Impreza, Legacy, and Outback.

Ford and General Motors expect to lose billions of dollars 

ford factory
Workers build Ford F-150 trucks at one of the automaker’s assembly plants.

Ford began slowing down production at its plant in Louisville in January. During Ford’s fourth-quarter earnings call, CFO John Lawler said the chip shortage could cut the company’s first-quarter production by 10% to 20% – a $2.5 billion hit to revenue.

The car models that will be impacted by cuts at Ford plants include the Ford Escape and Lincoln Corsair, which are produced at the Louisville plant. Cars.com said there will also be declines in production of the Ford Edge and Explorer, as well as the Lincoln Aviator and Lincoln Nautilus.

During GM’s fourth-quarter earnings call the company said it expects to see a negative impact of $1.5 to $2 billion this year. 

The company announced last week that it was closing three of its North American plants. The manufacturing sites will remain closed until at least mid-March.

The closures are expected to impact the Buick Encore, Cadillac XT4, and GMC Terrain. The company’s Chevrolet line will also see some slowdowns, as the sites that produce Chevrolet Equinox, Malibu, and Trax have been impacted.

Fiat Chrysler and Volkswagen also feel the pinch

Dodge Challenger SRT Hellcat Redeye Widebody
Dodge Challenger SRT Hellcat Redeye Widebody

In January Fiat Chrysler suspended operations at plants in Ontario and Mexico. The slowdowns will impact several Chrysler, Dodge, and Jeep products. Cars.com said dealerships will likely have lower inventories for the Chrysler 300, Pacifica, and Voyager. The Dodge Challenger and Charger may be in shorter supply, as well as the Jeep Cherokee and Compass.

BMW, Mercedes-Benz, and Volkswagen were some of the first car companies overseas to report shortages. In December, Volkswagen had already begun lowering production rates. The Volkswagen Atlas, Atlas Cross Sport, and Passat have already been impacted by the supply disruption.

Toyota, Honda, Subaru, Ford, GM, Fiat Chrysler, and Volkswagen did not respond in time to comment.

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