The Global Chip Shortage: From Cars to Consoles

Khan Capital | June 2021

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Key Takeaways

• The global semiconductor shortage is affecting an estimated 169 industries, with the automotive sector expected to lose over $110 billion in revenue and produce 11 million fewer vehicles in 2021.
• The crisis is a “perfect storm” of five converging factors: the COVID-driven demand shift, just-in-time inventory failures, physical disruptions (Texas storm, Renesas fire, Taiwan drought), US-China trade war effects, and structural underinvestment in mature-node chip capacity.
• Semiconductor manufacturing concentration presents extraordinary risk: 91% of contract chipmaking is in Asia, with TSMC alone commanding over 55% of global foundry revenue and ASML holding a 100% monopoly on EUV lithography equipment.
• New fabrication capacity takes two to three years to build at a cost of $10-20 billion per facility, meaning the shortage will persist well into 2022 despite massive capex commitments from TSMC ($100 billion), Intel ($20 billion), and Samsung ($116 billion).
• The semiconductor sovereignty theme, driven by the proposed US CHIPS Act, the European Chips Act, and similar initiatives globally, will reshape industrial policy and drive a multi-year capital expenditure supercycle benefiting equipment makers, foundries, and the broader semiconductor ecosystem.

A single semiconductor can cost less than a dollar. Its absence can idle a $35,000 car. That asymmetry, invisible to most investors for decades, has become the defining supply chain crisis of the post-pandemic era. The global semiconductor shortage is now affecting an estimated 169 industries, from automobiles to gaming consoles to medical devices. The automotive sector alone is expected to lose over $110 billion in revenue in 2021 and produce approximately 11 million fewer vehicles than planned. Lead times for chips from major suppliers like Broadcom have stretched from 12 weeks to over 22 weeks. Goldman Sachs estimates the shortage could reduce US GDP by as much as 1% this year. This is not a temporary disruption; it is a structural crisis that exposes the fragility of the world’s most strategically important supply chain.

How We Got Here: A Perfect Storm

The chip shortage is not the product of a single event. It is the convergence of at least five distinct shocks, each of which would have strained semiconductor supply individually. Together, they have overwhelmed it.

The COVID demand shift. When the pandemic hit in early 2020, automakers anticipated a prolonged slump in vehicle demand and cancelled chip orders. Simultaneously, the shift to remote work and home entertainment triggered a surge in demand for laptops, tablets, webcams, routers, and gaming consoles. TSMC, Samsung, and other foundries reallocated capacity to serve the booming consumer electronics sector. When auto demand rebounded faster than expected in Q4 2020, carmakers found themselves at the back of a very long queue. The automotive supply chain, with its six-month lead time from chip production to vehicle assembly, could not pivot quickly enough.

The just-in-time reckoning. For decades, the automotive industry operated on lean, just-in-time inventory principles that minimised working capital but left virtually no buffer against supply disruptions. When the shortage hit, most automakers held only days of chip inventory. The contrast with other industries was stark: Apple and other consumer electronics firms had secured long-term supply agreements with foundries, while carmakers relied on multi-tier supplier networks where chip procurement was several layers removed from the OEM.

The cascade of physical disruptions. A series of unrelated events compounded the supply constraints. In February 2021, a severe winter storm in Texas forced the closure of semiconductor plants owned by Samsung, Infineon, and NXP Semiconductors, setting back production by months. In March, a fire at Renesas Electronics’ Naka factory in Japan, which supplies approximately 30% of the global market for automotive microcontrollers, took the facility offline for over a month. Taiwan, home to TSMC and over 60% of global foundry capacity, experienced its worst drought in half a century, threatening the ultra-pure water supply essential to chip fabrication.

The US-China technology war. Washington’s decision to place Huawei and later SMIC (China’s largest chip manufacturer) on the Entity List forced a restructuring of global semiconductor supply chains. Huawei began stockpiling chips ahead of anticipated restrictions, draining available inventory. Companies that had relied on SMIC were forced to shift orders to TSMC and Samsung, adding further pressure to already constrained capacity.

The structural underinvestment in mature-node capacity. Perhaps the most important and least understood factor: the shortage is most acute in older-generation chips (28nm and above) that are used in automotive, industrial, and consumer applications. The semiconductor industry’s capital investment over the past decade has been overwhelmingly directed toward leading-edge nodes (7nm, 5nm, 3nm) used in smartphones and data centres, where margins are highest. The mature nodes that power car engine management systems, power converters, and display controllers have received comparatively little investment. Building new fabrication capacity for these nodes takes two to three years and costs billions, meaning the structural supply gap cannot be closed quickly.

The Supply Chain’s Single Points of Failure

Chokepoint	Concentration	Risk
Contract foundry manufacturing	TSMC: ~55% global share; top 3 control ~84%	Taiwan earthquake, drought, or cross-strait conflict
EUV lithography equipment	ASML: 100% monopoly	Single company, single country (Netherlands)
Advanced packaging/testing	~75% concentrated in East Asia	COVID lockdowns, logistics disruption
Automotive microcontrollers	Renesas: ~30% global share	Single factory fire (March 2021) disrupted global auto production
Neon gas (used in lithography)	Ukraine: ~50% of global supply	Geopolitical disruption in Eastern Europe

The concentration risk is staggering. An estimated 91% of the world’s contract chip manufacturing is housed in Asia, with the majority divided between Taiwan and South Korea. TSMC alone accounts for over 55% of global foundry revenue and manufactures chips for virtually every major technology company on the planet, from Apple to Nvidia to Qualcomm. ASML, the Dutch firm that produces extreme ultraviolet (EUV) lithography machines, the equipment required to manufacture leading-edge chips, holds a 100% monopoly. There is no alternative supplier. If ASML’s production were disrupted, the entire world’s ability to manufacture advanced semiconductors would halt.

What the Market Is Misunderstanding

This is a structural shortage, not a cyclical one. The market is pricing the chip shortage as a temporary pandemic-era disruption that will normalise as vaccine rollouts enable economic reopening. This view underestimates the magnitude of the capacity gap. New semiconductor fabrication plants take two to three years to build and cost $10-20 billion each. Even with the massive capital expenditure announcements from TSMC ($100 billion over three years), Intel ($20 billion for two new Arizona fabs), and Samsung ($116 billion over a decade), meaningful new capacity will not come online until 2023-2024 at the earliest. The shortage will persist well into 2022 and potentially beyond.

The automotive industry’s pain is self-inflicted. Carmakers cancelled chip orders in the early months of the pandemic, ceding their manufacturing slots to consumer electronics firms. When demand recovered, they discovered that semiconductor foundries operate on allocation systems that reward long-term, consistent customers. Apple, which provides TSMC with steady, high-volume orders at premium prices, was barely affected by the shortage. Ford and General Motors, whose chip purchases are smaller, more fragmented, and intermediated through multiple tiers of suppliers, were devastated. The lesson for the auto industry is clear: semiconductor supply must be treated as a strategic asset, not a commodity procurement function.

The geopolitical dimension is accelerating. The chip shortage has transformed semiconductor policy from a niche industrial issue into a first-order national security concern. The Biden administration has proposed $50 billion in semiconductor manufacturing incentives as part of the US Innovation and Competition Act. The EU has signalled similar ambitions for European chip sovereignty. China is investing heavily in domestic semiconductor capability through its “Big Fund” initiative. The result will be a partial de-globalisation of semiconductor supply chains, with major economies pursuing strategic autonomy in chip manufacturing. This reshoring will reduce concentration risk over time but will also increase costs, as production moves from the most efficient locations (Taiwan, South Korea) to strategically motivated ones (Arizona, Dresden, Wuhan).

The inflationary transmission is broader than recognised. Semiconductors are embedded in virtually every manufactured product in the modern economy. When chip supply constrains production of cars, appliances, industrial equipment, and consumer electronics, the result is reduced supply of finished goods at a time when demand is surging. This supply-side constraint is contributing to the broader inflationary pressures that are already concerning central banks. The chip shortage is not just an industrial problem; it is a macroeconomic one.

Implications for Investors

Semiconductor equipment makers are the picks-and-shovels play. Regardless of which chip companies win the capacity race, the firms that supply the manufacturing equipment will benefit from the multi-year capital expenditure supercycle. ASML (EUV lithography), Applied Materials, Lam Research, and KLA Corporation are positioned to capture the billions being deployed into new fabrication facilities globally.

Automotive OEMs face margin compression and production uncertainty. The chip shortage is forcing carmakers to prioritise higher-margin models (trucks, SUVs, luxury vehicles) over volume production. Used car prices have surged as new vehicle supply has contracted, with the Manheim Used Vehicle Value Index reaching record levels. Investors in auto equities should focus on companies taking strategic action to secure direct semiconductor supply relationships.

TSMC is the single most important company in the global economy. No other firm commands as dominant a position in as critical a supply chain. TSMC’s capital expenditure plans, manufacturing yields, and geopolitical exposure (particularly regarding cross-strait tensions with China) are first-order variables for the entire technology sector and, increasingly, for the broader global economy.

The semiconductor sovereignty theme will drive policy and investment for a decade. The CHIPS Act in the US, the European Chips Act, and similar initiatives in Japan, South Korea, and India represent a generational commitment to reshoring semiconductor manufacturing. Companies and regions positioned to capture this investment, from construction firms building fabs to utilities powering them, will benefit from a durable structural tailwind.

Conclusion

The global chip shortage has laid bare a vulnerability that was hiding in plain sight: the world’s most complex and strategically important supply chain is concentrated in a handful of companies, in a handful of countries, with virtually no buffer against disruption. The pandemic exposed the fragility; the response will reshape the semiconductor industry, global industrial policy, and technology supply chains for the next decade. For investors, the implications span from equipment makers and foundries to automakers and consumer electronics, and from near-term earnings disruptions to the multi-year capital expenditure supercycle that the shortage has set in motion. The chip, it turns out, is mightier than the car.

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Sources: Wikipedia, Bloomberg, Sourcengine / Goldman Sachs, PMC (Academic Research), Fusion Worldwide, ScienceInsights

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