Automakers Brace for Potential New Microchip Shortage

- The previous major chip shortage, which began in 2020, resulted in an estimated $210 billion in lost revenue for the automotive industry in 2021 alone, with over 11 million vehicles cut from production. This new potential shortage is different because it is driven by a structural shift in semiconductor demand towards high-margin AI and data center applications, rather than a pandemic-induced demand shock. - Dynamic Random Access Memory (DRAM) chips are at the center of the current supply concerns. These are crucial for modern vehicles, especially in advanced driver-assistance systems (ADAS), digital cockpits, and infotainment systems. As vehicles advance, their need for memory and storage is growing, with projections showing the average car in 2025 will have three times more DRAM and four times more NAND flash storage compared to 2021. - Semiconductor manufacturers like Samsung, SK Hynix, and Micron are prioritizing the production of High-Bandwidth Memory (HBM) for AI data centers because it is more profitable. This is causing them to phase out older memory technologies, such as DDR4 and LPDDR4, which are still widely used in the automotive sector for components like engine control units. - The cost of memory chips has already seen a sharp increase, with a reported 90 percent jump between the fourth quarter of 2025 and the first quarter of 2026. Analysts predict that new-contract DRAM prices for automakers could rise by 70% to 100% in 2026 compared to 2025. - In response to past and potential shortages, automakers are pursuing several long-term strategies, including establishing direct partnerships and joint ventures with chipmakers, diversifying their supplier base, and in some cases, designing their own chips in-house. For instance, Tesla has re-engineered its software to use fewer chips, and Mercedes-Benz has partnered with Taiwanese chip suppliers to secure its supply chain. - The average modern vehicle contains over 1,700 semiconductor chips, with about 95% of these being older, "foundational" or "legacy" node chips. While the focus of the new shortage is on advanced memory, the supply of these foundational chips remains a vulnerability for the auto industry. - The shift in focus to AI is expected to have a significant long-term impact, with AI data centers projected to consume 70% of all memory chips produced by 2026. This could lead to a rapid decline in the availability of older-generation DRAM starting around 2028, potentially forcing automakers to undertake costly redesigns of their cockpit and ADAS systems. - This isn't just an automotive issue; other sectors are affected as well. Major hard drive manufacturers like Western Digital and Seagate have reportedly sold out most of their 2026 inventory, and computer manufacturers like Dell and Lenovo are raising prices due to the increased cost of memory chips.