As the U.S. emerges from the COVID-19 crisis, the auto industry is showing plenty of positive signs of regrowth. While public transportation usage screeched to a halt amid concerns over personal hygiene and social distancing, the appeal of purchasing a personal vehicle grew — particularly among younger generations. The pandemic also ignited greater urgency for sustainability initiatives, including progress in the world of electric vehicles.
But over the past several months, that focus on maximizing a booming post-pandemic recovery has abruptly shifted. The semiconductor shortage is threatening the auto industry's ability to produce vehicles at scale, and forcing many manufacturers to create more basic, featureless vehicles that lack the technological capabilities that chips provide. Navigation systems and blind-spot monitoring mirrors are two examples of features that are being cut as a result.
We're witnessing a symbolic reversal. Rather than aggressively pushing forward to innovate the electric and autonomous vehicles of the future, the auto industry is fully concentrated on resiliency — outlasting the chip shortage and producing enough vehicles to meet demand and remain profitable.
While the chip shortage is likely to delay EV and AV progress, here are three ways automotive leaders can position themselves to overcome these obstacles when the crisis is over.
1. Rethink the supply chain: Many people don't realize just how many computer chips are built into today's cars. With such a limited supply of available chips, car companies are allocating those chips for today's vehicles, rather than using them to test and experiment on the vehicles of tomorrow.
This has automakers rethinking how to prevent a similar scenario down the road — and the supply chain could be the solution. Leaders should take this opportunity to reevaluate their supplier structure — not only across chips, but also some of the other key components such as batteries, sensors and vision-detection capabilities that are critical for EV and AV production. Ensuring the supply chain is diversified, resilient and reliable can future-proof against the next big disruption — and prevent another setback on the innovation journey.
2. Secure resources for R&D: As the auto industry navigates the chip shortage, producing fewer vehicles is likely to result in reduced revenue.
Research shows the production of nearly 4 million vehicles could be lost this year, and the auto industry could lose as much as $110 billion in revenue. To make up for the potential losses, automakers may be looking for areas to trim their budgets — and leaders in support of EV and AV innovation must ensure these cuts aren't made in R&D.
Now is the time to get creative by securing resources in advance and identifying more cost-effective projects that can be done in the short term, while holding off on more expensive R&D projects until 2022. Those companies that continue to invest in their innovation agendas during tough times are the ones that will maintain innovation as a core differentiator moving forward.