Prices on some Tesla models are increasing due to global supply chain disruptions in the auto industry, particularly with raw materials, Elon Musk said on Twitter Monday.
Musk’s explanation came in response to a Twitter user who said he didn’t like the “direction” the company was going in by “raising prices of vehicles but removing features like lumbar for the Model Y.”
The Tesla and SpaceX CEO responded: “Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially.”
A group of Republicans and Democrats are putting forward a new plan aimed at bolstering the nation’s economic competitiveness against China. It represents a big test of whether Republicans and Democrats can still collaborate on key issues in Congress.
Senate Majority Leader Chuck Schumer along with Republican Sen. Todd Young introduced legislation on Wednesday to pour federal money into industries like semiconductors and artificial intelligence. Other co-sponsors included Democratic Rep. Ro Khanna of California and GOP Rep. Mike Gallagher of Wisconsin.
The package would also expand the National Science Foundation, providing $100 billion over five years to fund a new research and development agency. It also allocates $10 billion to build regional hubs across the US to boost domestic manufacturing and create new companies as well.
“This legislation will enhance American competitiveness with China and other countries by investing in American innovation, building up regions across the country to lead in the innovation economy, creating good-paying American manufacturing and high-tech jobs, and strengthening America’s research, development, and manufacturing capabilities,” Schumer said in a statement.
Khanna of California, a top House progressive, said in an interview that the broad coalition reflected deep backing for the measure. He believes lawmakers “hit the sweet spot” with a package aimed at countering China’s economic influence, a rare area of bipartisan agreement in Congress.
“I think it is a huge step in that direction in terms of improving our competitiveness, improving our job creation and improving our support of critical industries,” Khanna said in an interview with Insider. “It’s a key area.”
The White House released a statement supporting the package, though signaling it could still change.
“We look forward to working with Congress to further shape this legislation to renew America’s global leadership in science and technology and to make sure we develop and manufacture the technologies of the future,” White House press secretary Jen Psaki said in a statement.
China’s economic ascent has prompted a groundswell of Republican and Democratic calls for the government to invest more money into research and development in recent years. The pandemic also exposed the reliance of the US on global supply chains that originate in China.
Semiconductors are so important that they can even create national security issues when drones, fighter jets, and other critical military components are affected.
That’s one of the reasons why President Biden met with 20 top executives on Monday to discuss what can be done to fix the chip industry’s supply constraints and make sure something like this doesn’t happen again in the future.
President Biden has committed to helping the industry fix the semiconductor shortage with his new infrastructure bill. The $2 trillion infrastructure and jobs package will include some $50 billion for semiconductor research and production.
Still, despite help from the US government, experts say the global chip shortage is set to drag on. Below, Insider details how long four experts expect the crisis to continue and what it could mean for markets.
In an interview with Insider on April 6, Baird’s Ted Mortonson said he believes the global chip shortage will continue through the rest of the year.
The tech sector strategist said rising demand from the cloud sector, the 5G rollout, telecommunications firms, EV makers, and more is one of the main reasons for the shortage and noted that new capacity will need to come online to offset demand.
Mortonson highlighted semiconductor firms’ recent investments into capacity including Taiwan Semiconductor Manufacturing Co.’s $100 billion investment over the next three years that the company says will “increase capacity to support the manufacturing and R&D of advanced semiconductor technologies.”
However, the strategist said that despite new initiatives, much of the additional capacity won’t come online until the end of the year. Mortonson also noted that most semi companies have instituted “non-cancellable orders” and that lead times range from 15 weeks to over 50 weeks in some cases.
Mark Fields, former Ford CEO and senior advisor at TPG Capital
Mark Fields sat down with CNBC on April 9 to discuss the effects of the global chip shortage on the auto industry. Fields said auto manufacturers lost about 3 million units due to COVID in 2020 and he expects the chip shortage may be just as destructive.
“Through the first quarter, through various forecasts, it looks like about 700,000 units were lost…you can just do the simple math and you could see that the losses could approach the level of the Covid losses for last year,” the advisor said.
Fields also said automakers are trying to maximize their production value by focusing on selling their highest margin vehicles, but that it’s really a “game of whack-a-mole” given the breadth of supply constraints.
Fields added that the situation for automakers should get better in the second half of 2021, but the industry won’t fully recover until well into 2022.
Ganesh Moorthy, chief executive officer at Microchip Technology
Ganesh Moorthy, the CEO of Microchip Technology, spoke with CNBC on Monday about the chip shortage and said it’s the worst crisis he’s seen in the industry in 40 years.
The “imbalance between supply and demand has never been this acute in all my history in this industry,” the CEO said.
Moorthy also said that he believes supply constraints will last through the year and “most likely” continue into next year.
The CEO added that the chip shortage has been “brewing for some time” and said that it started with tariffs during 2018 which caused demand to fall. In response, Moorthy says many chip manufacturers leaned out inventory and idled some factories in response.
Then when the pandemic hit, a swath of new stay-at-home trends caused demand to skyrocket, leading to the shortage.
Moorthy said that it “takes six months of cycle time from when we say go to when production comes online full force,” so he expects the lack of supply to continue moving forward.
Anand Srinivasan, Bloomberg Intelligence analyst
Anand Srinivasan, an analyst with Bloomberg Intelligence, spoke with Yahoo Finance on Monday and said that the chip shortage could persist well into the second half of 2021.
The analyst said investors shouldn’t just be worried about their auto industry holdings due to the semiconductor shortage either.
“In the grand scheme of a $440 billion industry the auto business is only 8%, 9% of semiconductors,” the analyst said.
Srinivasan is “more worried about other areas where the impact could be larger and it affects a lot more people.”
He said a variety of products will be affected by the shortage but argued the two industries he’s most worried about are PCs and smartphones, which make up some 70% of semiconductor demand.
The good news for investors is that Srinivasan believes that the lack of supply will stretch out demand, rather than hurting it. “You’re not going to go out and buy a bicycle because you couldn’t get your Audi A4,” the analyst said.
This means that although production might be hurt in the short-term, over the long haul strong demand will remain, according to the analyst.
Japan’s Renesas Electronics, a leading supplier of semiconductors for the automotive industry, will resume production within one month at its N3 Building where a fire broke out last week, the company said on Sunday.
The blaze broke out Friday in a clean room at the company’s main factory in Hitachinaka, northeast of Tokyo. Halting production at the N3 Building will cost around 17 billion yen (or around $156 million) per month, the company said.
The production halt is also likely to further dent the global supply of chips needed by auto makers, CEO Hidetoshi Shibata said.
The clean room will be scoured and the company will procure replacements of the burned equipment, company officials said in a Sunday press conference.
Renesas reported no damage to the building or injures among employees but said that 2% of the manufacturing equipment at the N3 Building has been burned.
The company said that around two-thirds of the products manufactured at the N3 Building can be produced in foundries as an alternative.
Manufacturers in the electronics and auto industry have been struggling with the global chip shortage caused by disruptions in the supply chain during the coronavirus pandemic. This has pushed companies to delay production plans or search for other suppliers.
These chips have become a crucial part of the supply chain.
Car companies like Ford use them to power the modern-day technology in their vehicles – the engine, Bluetooth capabilities, seat systems, collision and blind-spot detection, transmissions, WiFi, and video displays systems all run on the chips.
And the silicon components are what power the high-tech gadgets from companies like Apple that we use every day. The upgraded technology in gaming consoles and 5G smartphones in particular require a lot more power, and therefore rely more on chips than previous generations.
Automakers like General Motors, Toyota, Ford, and Subaru, to name a few, were forced to close factories around the onset of the pandemic. When the factories reopened, customer demand for cars had skyrocketed as people, stimulus checks in hand, jumped at the opportunity for low-interest rates and a way to get around that didn’t involve mass transportation.
The shortage doesn’t look like it will let up any time soon
Computer chip makers are running at maximum capacity and it’s not feasible for companies to build factories to compensate for the increase in demand, Bloomberg has reported.
Phone makers like Apple are more prepared to pay higher prices for the chips than automakers are, according to an analyst who spoke to Bloomberg. That doesn’t mean phone makers haven’t been negatively impacted by the chip shortage though – Apple reportedly faced supply issues for chips to power its 5G-equipped iPhone 12 models that debuted in October.
Citi expects hyperscale-led data center demand recovery in the first half of 2021 and sustained PC gaming demand to drive an EPS boost.
Their analysts’ EPS estimates for Nvidia remain 2%-5% above street projections.
That’s worth noting, as Street analysts already expect Nvidia to grow its earnings by 48% in the January quarter to $2.80 per share. That’s on top of 55% year-over-year sales growth which will see Nvidia closing on the $5 billion revenue mark for the quarter.