Elon Musk says Tesla prices are increasing because of supply chain disruptions across the auto industry

Tesla Model Y.
Tesla Model Y.

  • The prices of some Tesla models are going up because of the supply chain issues, CEO Elon Musk said.
  • Tesla earlier this month boosted prices on its Model 3 and Model Y.
  • The global auto industry has been hit hard by supply chain issues, notably a shortage of computer chips.
  • See more stories on Insider’s business page.

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.”

Tesla earlier this month boosted prices on its Model 3 and Model Y, Electrek reported. It was the fifth price increase on the models in a matter of months.

The global auto industry has been hit hard by supply chain issues, notably a shortage of computer chips, due to the COVID-19 pandemic.

The semiconductor shortage is expected to cost the global automotive industry $110 billion in 2021. Carmakers including Ford and GM have cut their earnings expectations by billions of dollars.

Tesla has not been immune to the impacts of the shortage. Last month, during the electric car company’s earnings call, Musk said supply chain issues were causing “insane difficulties” and the chip shortage had impacted Tesla’s manufacturing goals. Musk recently tweeted that the delivery date for Tesla’s Model S Plaid, the carmaker’s quickest vehicle, was pushed back by one week to June 10.

Tesla is now in talks to pay supplies upfront for computer chips, the Financial Times reported. Musk has also shown interest in vertical integration. Last year, the company announced plans to make its own battery cells and even bought land in Nevada to mine for its own battery-grade lithium.

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Republicans and Democrats are teaming up to take a ‘huge step’ in the US’s battle against China

Chuck Schumer
  • Top Democrats are partnering with Republicans on a bill to counter China’s economic influence.
  • Co-sponsor Rep. Ro Khanna said in an interview lawmakers “hit the sweet spot” with the plan.
  • The legislation will be a test of whether Democrats and the GOP can still work together in Congress.
  • See more stories on Insider’s business page.

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.

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The global chip shortage is set to drag on. 4 experts predict how long it could last and how it could affect markets

Semiconductor microchip stock image

Semiconductors are some of the most critical components for the technology the underpins much of modern life.

Smartphones, PCs, electric vehicles, and even your fancy new refrigerator all use the chips to operate. When the supply of these vital products falls, it can become a big issue.

Over the last year, the semiconductor shortage has caused car companies to halt production, made getting graphics cards for PCs headache, and it’s led companies like Apple to face significant supply constraints in its rollout of new products.

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.

Ted Mortonson, Baird technology desk sector strategist

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.

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Major auto chip supplier Renesas says it expects to resume production in a month following a fire at its factory

GettyImages 115784994
  • Renesas will replace equipment damaged by Friday’s fire.
  • The fire will likely further dent the global supply of chips needed by auto makers, CEO Hidetoshi Shibata said.
  • Halting production at the building will cost around $156 million per month, the company said.
  • See more stories on Insider’s business page.

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.

In February, the Japanese chipmaker bought Dialog Semiconductor, an Apple chip supplier, for 4.9 billion euros ($5.9 billion) in cash.

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Here’s why there’s a global computer chip shortage that is slamming automakers during the pandemic

vauxhall car factory
Vauxhall car factory in April 2020.

  • There’s a computer chip shortage accelerated by pandemic-driven disruptions in the supply chain.
  • Automakers rely on chips for tech in their cars, and the likes of Apple need them to power gadgets.
  • With only so many chips to go around, industries are suffering as they struggle to meet demand.
  • Visit the Business section of Insider for more stories.

A group of lawmakers is asking the Biden administration to intervene in what has become a global computer chip shortage.

“We believe that the incoming administration can continue to play a helpful role in alleviating the worst impacts of the shortage on American workers,” the senators wrote in a letter.

So what’s going on? 

Automakers and consumer electronics companies are vying for computer chips

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.

Since March, when the pandemic set in, consumer demand has surged for vehicles and for devices like smartphones and gaming consoles that people can use for entertainment while stuck at home.

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.

Automakers responded by ramping up production to maximum levels, further driving up demand – and competition – for computer chips.

Read more: Wall Street is worried that Intel’s disappointing earnings are a sign that its terrible year will only get worse: ‘2021 seems like a messy year’

Meanwhile, chip industry players like Intel were already struggling to keep up with demand, even since before the pandemic. And chipmakers overseas were also experiencing supply chain disruptions as the pandemic forced them to close down factories.

Even with chipmakers that are doing fairly well during the pandemic, like Taiwan Semiconductor Manufacturing Company – which produces more than half of the world’s computer chips and is also Apple’s primary supplier – there still isn’t enough supply to go around.

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.

But the auto industry specifically has felt the pinch, and some have even had to halt production due to the shortage. Ford and Fiat are temporarily pausing production because they don’t have enough chips.

With not enough chips in supply, the automaking industry could lose $61 billion in 2021, according to consulting firm Alix Partners as Bloomberg reported.

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Nvidia pares Thursday gains after spiking on Citi analyst’s strong outlook

Semiconductor manufacturing.
Nvidia semiconductor manufacturing.

  • Nvidia stock trimmed gains Friday after a strong showing on the back of Citigroup’s positive note on Thursday.
  • Analyst Atif Malik’s EPS estimates are 2%-5% ahead of street estimates, which implies Nvidia could post a $2.94 EPS figure when the company reports earnings on February 11.
  • Nvidia now boasts 30 Buy ratings, 5 hold ratings, and just 4 Sell ratings from analysts.
  • Visit Business Insider’s homepage for more stories.

Shares of Nvidia trimmed gains Friday after surging some 4.3% Thursday on a strong outlook from Citigroup. The stock was down around 1% early Friday afternoon. 

Citigroup analyst Atif Malik said in a note that Nvidia’s stock has lagged its chip manufacturing peers and could offer upside potential ahead of next week’s virtual CES conference.

Nvidia was added to Citi’s “Catalyst Watch List” and the bank maintained its $600 price target.

Malik noted Nvidia has fallen over 15% from its early November high of over $580 per share, while the iShares semiconductor index SOXX has gained over 24% during the same period.

Read more: Wall Street experts are calling Georgia’s runoff results ‘the first surprise of 2021.’ Here’s how 4 of them recommend positioning your portfolio for what could happen next.

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.

Read more: Investing legend Terry Smith’s $30 billion equity fund returned 449% to investors over a decade – Here’s his 4-part strategy for success and 10 pieces of investing wisdom to take into 2021

This news comes just weeks after Wells Fargo boosted their price target for the chip manufacturer to $625 per share from $600 per share.

As of Friday, Nvidia boasted 30 Buy ratings, 5 Hold ratings, and just 4 Sell ratings from analysts, per MarketBeat.

Shares of Nvidia are down over 1% Friday afternoon, trading at $529.07 per share as of 12:55pm E.T.

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