Want to buy a new car in the coming year? Act quickly – or be prepared to pay over the odds, or wait a little longer than you might ordinarily have done so. The auto industry is currently facing a massive supply crunch in vital chips, resulting in car manufacturer Honda entering the new year shutting down its production facilities in Japan and China because it can’t get enough chips to power their vehicles.
The carmaker’s challenges come from the ongoing argument over control of Nexperia, the Chinese-Dutch chip supplier whose ownership is under debate and subject to repeated sanctions. For months, Japan's Automobile Manufacturers Association has warned its members that the chip supplier couldn’t guarantee a steady stream of chips to meet the demand needed for new vehicles.
(Image credit: Quanta Computer)
The pressure isn’t coming from one single missing component. It’s a combination of a geopolitical shock hitting the supply of low-margin, high-volume parts for vehicles, and a market-wide shock in memory chips, driven by the popularity of AI data centers, that is hitting software-heavy, screen-filled cars first. Modern vehicles contain thousands of semiconductors, and assembly lines can’t wait for one low-cost component that is missing.
DRAM and industry qualification
But it’s not the challenges facing Nexperia that have impacted auto manufacturers: the ongoing memory crisis, which is negatively affecting the production of DRAM chips, has vehicle makers scrabbling to secure supply and looks likely to push up prices in the next 12 months.
The memory crunch is its own beast, hitting cars in a specific way. Automotive-grade components are expected to last a decade or more and keep working in all conditions, whether that’s the cold of deep winter or the under-bonnet heat. Industry qualification regimes like AEC-Q100 demand broad temperature grades and strong reliability tests. That pushes up the cost and narrows the pool of usable suppliers, especially in EVs, where thermal management, vibration, and power efficiency are already tight constraints.
“The developing supply issue may remind some of the chip supply shock that the global auto industry went through in 2021,” cautioned Dan Levy, senior equity analyst at Barclays, in a recent research note. The concern about history repeating itself has driven many within the auto industry to try and snap up a reliable chip supply, exacerbating the already tight situation, said Levy.
Data from S&P Global Mobility suggests that the demand for those chips within the auto sector will push up the cost that OEMs and their auto suppliers are willing to pay by between 30 to 100% in 2026 and 2027. Separate research by Bernstein suggests that the automotive semiconductor industry was worth around $77.8 billion in 2024, growing 15% in a compound annual growth rate since 2019. The same analysis highlights a dangerous disconnect in the supply chain: while semiconductor manufacturers are currently sitting on bloated inventories of over 160 days – nearly 50% higher than pre-pandemic levels – automakers have let their own safety stocks dwindle. OEM inventory days have dropped steadily throughout 2024 to just 59 days, leaving them with virtually no buffer to absorb the shock of the specific memory shortages predicted.
Dwindling supply
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