World’s largest carmaker will slash output by 40% in September as Covid-19 outbreaks hit semiconductor supplies

Volkswagen and Toyota have become the latest carmakers to warn about production cuts because of the global computer chip shortage.

German car manufacturer Volkswagen said a semiconductor supply crunch could force it to slow production lines during the autumn, adding to cuts that have been in place since February. Japanese firm Toyota also reported that it would slash output by 40% in September.

Carmakers have struggled after a recovery in demand stretched supply chains earlier this year, with Covid-19 outbreaks across Asia hitting chip production and operations at commercial ports.

“We currently expect supply of chips in the third quarter to be very volatile and tight,” said Volkswagen, the second largest carmaker behind Toyota.

“We can’t rule out further changes to production,” the company told Reuters.

The Wolfsburg-based carmaker said it expected the situation would improve by the end of the year, and aimed to make up for production shortfalls in the second half as far as possible.

New car prices have begun to rise in response to the limited supplies of cars, but the most noticeable impact has been on the secondhand car market, where prices have jumped by 14% year on year in the UK and more than 40% in the US.

Toyota said it intended to reduce global production for September by 40% compared with its previous plan, according to the Nikkei business daily. This pushed its shares down by 4.4% on Thursday.

The latest production woes follow news that German chipmaker Infineon, the top automotive supplier, was forced to suspend production at one of its plants in Malaysia in June, due to a coronavirus outbreak.

Reinhard Ploss, the Infineon chief executive, said earlier this month that the automotive industry faced “acute supply limitations across the entire value chain” and it would take until well into 2022 for supply and demand to be brought back into balance.

Analysts at ING said some Taiwanese semiconductor companies unaffected by the Delta variant of Covid-19 were pushing production beyond the usual 100% to satisfy demand.

Ford said on Wednesday it would halt output for a week on production lines that build its bestselling F-150 pickup trucks because of the shortage. The shutdown will begin on Monday.

Earlier this month, General Motors suspended production for a week at three North American truck plants, while Nissan halted it for two weeks at a Tennessee plant because of a Covid-19 outbreak at a chip plant in Malaysia.

Phone and computer makers have also reported semiconductor shortages. Apple executives said that while the impact was less severe than feared in the third quarter, it would get worse in the current quarter, and could hit iPhone production.

Such is the impact on the US car industry and the threat to jobs, it has emerged that three Democratic senators asked the Taiwanese government to give extra support to chip makers.

The letter, dated 18 August and not previously made public, was sent by Gary Peters and Debbie Stabenow, the senators from Michigan, and Ohio’s Sherrod Brown to Taiwan’s de facto ambassador in Washington, Hsiao Bi-khim, praising her “efforts to address the shortage”.

The senators said: “Demand for vehicles – from cars to commercial trucks – is now up, yet the lack of semiconductor chips is preventing this renewed demand from being met. At a time when our manufacturers should be adding extra shifts, they have had to idle US plants or curtail production. The US is now the most impacted region in the world.”

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