Check the supply chain: We’re out of chips
The pandemic has challenged businesses in many ways—and global supply chain problems are among the biggest threats to global economic growth, as well as a contributor to inflation. As we discussed in this space waaaaaay back at the beginning of the pandemic, if there is one part missing for the assembly of a product, that entire product might be put on hold. Think of a steering wheel for a car: No steering wheel, no car. But in modern times, we’ve discovered that cars run on chips. (Semiconductor shortages have also been called out as a culprit.)
The move to more electric vehicles adds to the challenge for chip supply. From that CNBC post…
“The shortage is thought to have been exacerbated by the move to electric vehicles. For example, a Ford Focus typically uses roughly 300 chips, whereas one of Ford’s new electric vehicles can have up to 3,000 chips.”
And the problem goes beyond chips. “You find shortages or constraints all over the place,” says Ford Europe chairman of the management board Gunnar Herrmann in that same post.
Supply constraints could drop global vehicle production by some 5% in 2021 vs. 2020 levels. In the U.K., vehicle production plummeted to its lowest levels since 1956. And the U.K. is churning out more EV and hybrid vehicles. That eats up more chips. From that post…
“Approximately 26% of the cars built by U.K. manufacturers in July were either battery electric, plug in hybrid, or hybrid electric, SMMT [the Society of Motor Manufacturers and Traders] said, adding that this is a new record. It said U.K. car factories have turned out 126,757 of these products since the start of the year.”
We’ll keep an eye on this chart and the search for chips. Auto sales figures courtesy of Liz Ann Sonders at Charles Schwab:
And while the pandemic has created its own supply chain issues, the chip shortage and semiconductor challenge is not a new event. The modern (technological) world runs on chips. We need these chips in everything from our smartphones to our dishwashers to our vehicles. Chips are a necessary commodity, perhaps not much different in practice than a nation needing oil and natural gas and other materials. From that Time link…
“In 1990, 37% of chips were made in American factories, but by 2020 that number had declined to just 12%. All the new pieces of the growing pie had gone to Asia: Taiwan, South Korea and China. Chip fabs aren’t just factories, but linchpins of American self-reliance.”
The geopolitical risks are massive. Relying on foreign chips is the same as relying on foreign oil. Stop the flow of chips, and you stop the flow of information and economic development.
We certainly know that nations have gone to war over oil.
“ It has been suggested that the big banks are using regulatory changes as an excuse to tighten up their offerings and drop the competition”
I think it is retaliation for the proposed Liberal tax hike on bank profits.
While I support the idea of keeping fees to the minimum possible, especially for index funds, I find the constant mantra of lower fees without commenting on performance to be doing a disservice to new investors. A full review of performance and fees should be what investors are aiming for. When you compare balanced funds, the XBAL, ZBAL and VBAL in the Best ETFs ranking, when considered net of expenses, don’t typically put you ahead of say the MAW104 Mawer Balanced or RBC Balanced Portfolio (RBF1013). Fees are only one decision point, but so many articles today make it sound like the lowest fees win, and you will automatically be further ahead.
Great post, thanjs.
Any suggestions for chip stocks or ETFs? Preferably on TSX..
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Hi, sorry for double posting this. For some reasons my previous comment is not showing up.
Do you have any suggestions for chip stocks or maybe even ETFs?