The Great Car Switcheroo, Part 2

And now, for the rest of the story…

In part 1, we looked at the problem that the chip shortage caused, especially in the car market. This post finishes the story with a look at supply.

We know that demand rose for cars and computers. One other contributor was the increased demand for chips in bitcoin mining. Bitcoin is a decentralized cryptocurrency that, in certain cases, can be used for buying goods and services.

Bitcoin is also an asset, like gold. Much of a Bitcoin’s value, like gold, is that buyers believe that they can sell it later for a higher price. Unlike gold, it’s mined with special processors called Bitcoin rigs that use lots of semiconductors. As the demand for bitcoin grew, especially during the pandemic, so did the need for chips.

Unfortunately, there was a shortage of chips, since supply also fell during the pandemic.

The pandemic shut down factories and distribution channels, particularly in Eastern Asia. The zero-COVID policy in China, which prioritized safety over production, meant production facilities didn’t restart until late in December 2022, when China lifted the policy.

When the delta variant hit Malaysia, testing and packaging of semiconductors stopped. Inventories of already manufactured chips got left at the factory. With ports closed, chips also got stuck in the distribution chain.

Natural disasters also caused problems in the supply, according to Esther Shein writing for TechRepublic. Three fires in Japan damaged manufacturing plants. Texas experienced winter storms which limited production at Intel. And, in Taiwan, a drought caused problems with production, since the process uses a lot of water. Chips also take a long time to manufacture, in some cases up to six months.

Meanwhile, the demand for new cars continued. The inventory of used cars fell until that source of cars dried up because there were no new cars in production. Add to this, the demand for computers and peripherals and better phones by workers at home and Bitcoin production also rose.

For Tesla, which only makes EVs, this was a huge problem—they couldn’t produce new vehicles. However, according to Sarah Zimmerman writing for UtilityDive, the company found a workaround that allowed them to use out-of-date chips they still had in inventory. This allowed the company to restart production when other car manufacturers couldn’t. Tesla also found ways to reduce the number of chips used in each car. The company found ways to combine the functionality of two or more chips into one. Therefore, they needed fewer chips.

By 2023, manufacturing in Malaysia and China returned to normal, and ports reopened. What was a shortage turned into a glut in the markets for certain chips. Manufacturers of durable electronic goods, like computers, overestimated the continued demand for their products. Since durable goods are only replaced every few years, the demand receded. The need for home upgrades to better computers and peripherals fell too, as some remote workers returned to their offices.

By 2023, demand had receded, and supply had increased. Car dealers once again had cars in the lots. Even in cryptocurrency, a change in the algorithm that validates transactions reduced the demand for computer processing.

 A crackdown on crypto mining in China and Malaysia further reduced the demand for processing, as noted by the BBC. In a viral YouTube video, police in Malaysia used a steamroller to destroy over a thousand Bitcoin rigs. Miners turned to better ways to use processing power to reduce the strain on power grids.

In an effort to reduce American dependence on chips from other countries, Congress passed the CHIPS and Science Act. The CHIPS Act provides funding and tax credits for new production and research into semiconductor manufacturing on US soil. The Federal Trade Commission (FTC) also announced the CARS act to protect car buyers from ongoing scams in the car market.

Cars manufacturers are ramping up production, and we saw dealer lots fill. Prices remain high, though. The average price of a new car is over $47,000! Manufacturers switched to making larger SUVs and trucks and higher-markup luxury vehicles, which are more expensive. There is limited production in the lower-end market, but cars started trickling into the used car markets again.

As the late Paul Harvey would say at the end of his broadcasts: And now, for the rest of our story. Our other son got a new car, which he didn’t fit into (he’s 6’4”). We got his car, and he bought a bigger car. The son who totaled his car got our last old car. That was in 2022. In 2023, our daughter-in-law needed a new car. She got a newer used car, at a reasonable price, from a dealer after that.

At least my son had a much shorter commute now, from Norcross to Lawrenceville. And he doesn’t have to drive on accident-prone I-285 to get to work.

As always, thanks for reading. Comments and suggestions welcome.

Nikki