Short on chips

Khaled El-Ghamry, Wednesday 13 Oct 2021

A global shortage of microchips has caused a swerve in Egypt’s auto industry, reports Khaled El-Ghamry

Short on chips

The Egyptian auto market has been rocked by various supply-side issues over the past six months, with shortages of cars from the majority of brands having been the result of the inability of local and global suppliers to meet the demands of dealers, distributors, and factories in Egypt.
The shortages have meant that over the past two months dealers have been upping prices for customers not wanting to see their names on waiting lists to receive their cars.
The root of the problem is a global shortage of the microchips used in vehicles to provide an array of functions, including connectivity, memory, security, timing, and touch-sensitive controls.
Hussein Mustafa, former head of the Egyptian Automobile Manufacturers Association, expects the international automotive industry to shoulder losses of at least $60 billion by the end of the year due to microchip shortages.
Microchips are key elements in car manufacturing, reaching up to 40 per cent of a vehicle’s components, Mustafa said.
The international automotive industry consumes microchips worth $45 billion annually, while in electrical appliances, phones, laptops, planes, and other items, microchips represent sales of $450 billion a year, he added.
With the world shutdown in early 2020 due to the Covid-19 pandemic, demand increased for home consumer electronics causing ripples up the supply chain. Microchips were pulled from the automotive industry into other markets where demand was hiking.
The industry failed to stock up on microchips, resulting in the closure of many car factories in Eastern Europe and Latin America. Factories in Japan announced they were reducing their production by up to 40 per cent, with the decision ricocheting to Egypt.
Tarek Mustafa, a sales manager at Nissan Egypt, said the six-month crisis was getting worse due to the closure of international factories and the plummeting demand for vehicles on the part of consumers.
Microchip manufacturers, the majority of which are located in China and India, had shifted their attention from cars to other businesses that were booming at the time of the Covid-19 lockdown, he said.
With the easing of coronavirus restrictions in many factories, the car factories have picked up pace, especially with rising demand for vehicles. But they have been faced by the microchip shortages.
As a result, auto imports to Egypt have dropped by 25 or 30 per cent.
The rising demand, coupled with short supply, has led to an increase in car prices by 30 percent depending on the brand, model, and country of manufacture.
The sector least affected is economy cars, which do not depend on advanced technologies. “Most of the demand in the Egyptian market is for economy cars,” said Mustafa. SUVs, on the other hand, are the most affected by the shortages.
Mustafa expects the problem will be resolved by mid-2022, when the microchip factories will have restored their production facilities.
Shady Rayan, chair of the board of Al-Masriya Auto, a dealership, said overpricing on some luxury European brands of cars had reached LE700,000. But even with the overpricing, distributors have not been able to make up for losses in sales, he said, especially with rising operational costs, including electricity bills and employee wages.
Moreover, the microchip shortages may negatively affect the availability of spare parts, causing more problems for consumers.
The only way to resolve the problem is for the car-manufacturing countries to build their own facilities to produce microchips, auto expert Ahmed Al-Mazahi, said. The cost of constructing one such facility can reach up to LE7 billion, however.
China has allocated $155 billion to back up its microchip industry due to the rising demand. It is well aware that the more the world relies on the new technologies, the higher the demand for microchips will be.
European and US auto companies have shouldered the heaviest losses in the current crisis. China is one of the world’s leading microchip manufacturers, and it prioritises supplying its own factories.
In Egypt, this has been translated into a decrease in European, American, and Japanese car sales and more lucrative business for Chinese vehicles.
Meanwhile, most Egyptian factories are struggling to continue manufacturing due to the microchip shortages, with some of them putting customer reservations on indefinite hold.

*A version of this article appears in print in the 14 October, 2021 edition of Al-Ahram Weekly

Short link: