Why Is There a Semiconductor Shortage?

Electric vehicles will take over from petrol and diesel vehicles in the near future, but with shortages in the materials we need to make them, the switch is happening more slowly than it should be.

The ongoing semiconductor shortage is another factor affecting EV production all around the world.

We’ve investigated the semiconductor shortage, looking at why they’re essential for electric vehicles, what’s causing the shortage, whether it’ll improve, and when the deficit will end.

What are semiconductors and why do we need them?

Semiconductors are a type of material with specific properties that makes them ideal for use as microchips in computers and other electrical devices, including electric vehicles.

They’re called semiconductors because they only conduct electricity under specific conditions — unlike ordinary conductors, which conduct electricity 100% of the time.

This gives semiconducting materials the unique ability to control electrical current, an essential quality for technology like electric vehicles.

Electric vehicles only work with semiconductors, as they can access the electrical charge held in the battery. They’re pivotal for performance improvements, too — EVs get better mileage the more efficient their semiconductors are.

Manufacturers typically make semiconductors from sand, as it contains large amounts of silicon, which is perfect for use in chips. Silicon is very efficient at conducting or insulating electricity, depending on what conditions it’s placed under.

It’s also abundant — much more so than other materials used in semiconductors, such as germanium.

Why is there a semiconductor shortage?

The first setback for semiconductor production came as the COVID-19 pandemic disrupted industries across the world. Factory and port closures, labour shortages, and supply chain interruptions have all had massive impacts.

The fact that there’s a limited number of companies capable of using semiconductors to create microchips has caused issues as well. Over 80% of all microchip manufacturing is controlled by Samsung and the Taiwan Semiconductor Manufacturing Company.

This over-concentrates the market and causes much longer lead times. As of December 2021, the time between when someone orders a new electric vehicle and when it’s shipped has increased to 25.8 weeks.

It also doesn’t help that the demand for electric vehicles is going up at a much faster rate that they can be built.

What are the impacts of the shortage?

Electric vehicle manufacturers have already had to make changes to their products because of the semiconductor shortage.

Tesla removed one of the two control units found in the steering racks of their Model 3 and Model Y cars. Ford had to stop production of their electric Mach-E Mustang as they couldn’t source enough microchips in time. Toyota announced a production cutback of 100,000 vehicles in April 2022. There isn’t a company that hasn’t been affected.

A major problem is that electric vehicles use a lot more semiconductor chips than their petrol or diesel counterparts.

In a typical modern petrol car, you’ll find around 300–600 chips collecting driving data, powering screens, and managing emissions. Electric vehicles use upwards of 2,000 semiconductor chips, and some advanced models need well over 3,000.

Unfortunately, the semiconductor industry simply cannot keep up with the demand from EV manufacturers.

The economic impact of the shortage is massive as well.

Globally in 2021, around 7.7 million vehicles that would’ve been made, weren’t, costing the automotive industry £179 billion.

What other technologies require semiconductors?

Computers

Semiconductors form the backbone of all computing. Manufacturers use them to create microchips, which allow computers to recognise inputs. Each time you click on something or press a key, semiconductors use binary code to fulfil the function.

Microprocessors, graphics cards, and hard drives are all different types of semiconductors used in computers.

Transportation

Almost every modern vehicle uses semiconductors in some way — from GPS, parking, and airbags to anti-lock braking and air conditioning systems.

Electric vehicles rely on semiconductors to be able to function at all. And the more complex an electric vehicle becomes, the more semiconductors it needs in order to make sure everything works.

Green energy

Renewable energy technology such as solar panels and wind turbines require semiconductors to operate properly. In solar panels for example, semiconductors are essential for converting sunlight into usable electricity.

Wind and hydropower rely on semiconductors to smooth the rate at which electricity is sent to the grid. They make sure the current generated from renewable sources is transferred with as little loss as possible.

Engineers also include semiconductors in sensors to keep solar panels and wind turbines working as efficiently as they can — without these sensors, they’d have no idea how well the panels or turbines were working.

If we want to see a fully renewable UK, semiconductors are an essential part of making that a reality.

Healthcare

Many of the most complicated surgeries require advanced machines that can operate with precision. These machines need plenty of semiconductors so that they can register minute details that could save someone’s life.

Pacemakers, heart monitors, x-ray machines, and ultrasound machines are all made possible thanks to semiconductors.

Household appliances

Imagine a home with no fridges, microwaves, washing machines, or televisions — that’s what a home without semiconductors would look like.

Chips are also used to change temperatures and times, activate features, and improve the efficiency of boilers. It’s almost impossible to think of the modern home without semiconductors, because so much of our lives has become connected to them.

Is the semiconductor shortage getting better?

The semiconductor shortage seems like it’ll keep going for a while yet.

JP Morgan has suggested the shortage will start to ease in 2024, but even then, the company said semiconductor production was unlikely to meet industry demand.

SEMI, an industry association, has a different story. It’s predicted that by 2023, semiconductor manufacturing capacity will increase by 3%, which translates to around 6.6 million wafers per month — wafers being an essential part of semiconductor chips.

Fortunately for EVs, they don’t need the very latest in semiconductor technology, unlike other devices like smartphones and computers. That means they can rely on older, more readily available chips.

That means that when the shortage does start to ease, there’ll be less pressure on the industry to provide cutting-edge chips for EVs.

If electric vehicles are to become the most common type of vehicle on the road, then models that don’t need high-end chips will become the norm, even if some high-end models – like Tesla models – will still need the most cutting-edge chips.

Which countries produce the most semiconductors?

The overwhelming majority of semiconductors are produced in Taiwan, Japan, South Korea, and China. These four countries control 87% of the global market, with the remaining 13% split between the US and Europe.

Taiwan alone is responsible for more than 50% of all semiconductor manufacturing, which has caused concern for many other countries.

Recent military rehearsals from China in the form of warship blockades along the Taiwan Strait have prompted fears of what might happen if this critical electronic supply chain were to be interrupted.

If China blockaded or invaded Taiwan, the resulting semiconductor shortage would damage the electric vehicle market for many years to come.

That’s why computing companies such as Intel have started investing in more semiconductor plants in Europe, to reduce the reliance on Asia. Pat Gelsinger, CEO of Intel, said in 2022 he wants half of the world’s semiconductor manufacturing to be in the US and Europe.

Are there any alternatives to silicon?

Silicon’s abundance means it will always be the preferred material for making semiconductors, but there are other elements we can use.

Germanium is one alternative. Like silicon, it’s capable of making complex shapes that give it semiconducting properties.

It’s not quite as effective though, because it doesn’t work at the high temperatures that silicon thrives at. Germanium crystals start to deteriorate above 50 watts, making it unsuitable as a semiconductor for countless appliances.

Germanium is also a lot rarer than silicon, which makes it far more expensive and harder to source.

Summary

A world without semiconductors is a world that doesn’t function; it’s that simple. The ongoing shortage means the development of green technologies such as electric vehicles and more efficient grids has stalled.

More countries around the world need to start producing semiconductors, rather than concentrating the bulk of production in a handful of places.

Sand is everywhere – and so, therefore, is silicon – meaning the shortage hasn’t been caused by limited materials, but by a lack of ability to turn these materials into semiconductors.