Kavan Choksi on Chip Shortages Affecting Japanese Automakers

Kavan Choksi notes that the shortage of semiconductor chips crippled automakers globally. Even Tesla has been forced to alter its vehicles' steering components to accommodate the lack of chips. Meanwhile, luxury car makers like Ferrari and Lamborghini rely on existing stocks to meet production quotas.

How has this shortage affected Japanese automakers? With more than 10 major automakers, Japan has the third-largest market share in the automotive industry. Even with the chip shortage, Kavan Choksi explains that Japan sold over 2.4 million units in the first half of 2022.

Despite the Japanese market's impressive performance, statistics still show a 15% year-over-year decline in sales. And it's not for lack of global demand for Japan-made cars. Rather, the unavailability of raw materials, stringent exportation guidelines, and weakening yen have made the past two years challenging for automakers throughout the country.

How Japanese Automakers Respond to the Chip Shortage

According to Kavan Choksi, Japanese automakers have attempted to cope with the shortage by increasing prices and putting customers on waitlists. Manufacturers can hardly be blamed for the price hikes as they struggle to limit losses while still meeting demands. In fact, Toyota stated that they'd lose $11 billion this year on manufacturing costs if they sold their vehicles at the same price.

Moreover, automakers are rewriting codes to minimize their reliance on semiconductor chips. For instance, let's say the Toyota Camry needs nearly 2,000 chips. If Toyota can encode certain functions into the same chip, it could significantly reduce the number of chips required to function.

How Japan Copes With the Global Car Shortage

Consumers who want a brand-new vehicle can either put their name on the waitlist or opt for an older or more available model. Those who don't want to pay the steep rates would likely opt for used vehicles. However, Kavan Choksi notes that most consumers are likely to avoid spending money on a new car altogether during these turbulent times.

Japanese automakers share that they recently have seen an increase in motorbike sales. Middle-class consumers with disposable income see motorcycles and motorized scooters as a way to acquire a new vehicle while avoiding the high cost of a new car and saving on gas.

Why the Semiconductor Industry is Lagging

The semiconductor industry started lagging due to supply chain issues caused by the COVID-19 pandemic. Countries cannot freely export raw materials, considering stringent restrictions on travel and social distancing. As a result, semiconductor chip manufacturers were unable to produce an adequate supply of units.

Though society is regaining a sense of normalcy and logistics service providers are fully operational, the industry still hasn't caught up to the demand. Kavan Choksi feels that it may require another year or two before the industry starts mass producing enough chips to catch up. Automakers may need even more time to compensate for their slow car production.

What the Future Looks Like for Japanese Automakers

Japanese automakers might see further losses before the supply chain normalizes. Consumers won't stand for constant price increases on brand-new vehicles that take over a year to acquire. In all likelihood, motorists will turn to the secondary market instead.

However, Kavan Choksi believes that Japanese automakers can overcome the global chip shortage. Most of these brands have been around for decades now. They've survived several recessions and economic dips, so two to four years of semiconductor chip shortages shouldn't be enough to wipe them out entirely.