“Even if the OEMs say they didn’t overcorrect, they may not have been thinking far enough ahead,” said Tor Hough, founder of Elm Analytics, a supply chain research firm based in the Detroit area, referring to carmakers, or original equipment manufacturers in industry parlance. “They’re also very wedded to ‘lean manufacturing’ – so keeping low inventory to be more cost efficient.”

SCMP Infographics: Electric cars and the Made in China 2025 industrial master plan

Carmakers don’t deal directly with TSMC and other contract chip makers. Instead, they work with auto-part suppliers like Robert Bosch and Continental , which in turn deal with automotive chip designers including NXP Semiconductors NV and Infineon Technologies .

While those two European chip makers both make some parts in-house, they outsource a significant portion of production to TSMC and other foundries. It’s difficult for automotive chip designers to get their orders prioritised by foundries because their volume is dwarfed by their consumer electronics peers.

One contract chip maker notified all its customers in the third quarter that it might be time for them to place more orders as it anticipated a rebound in demand, but automotive clients demurred and ended up being the last ones to seek more capacity, one of the people said.

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TSMC’s automotive customers continued to decrease demand in the third quarter, and the chip maker only began to see sudden recovery in automotive orders in the fourth quarter, Chief Executive Officer C.C. Wei said in an earnings call earlier this month. By contrast, makers of consumer electronics and other hardware quickly built up chip inventories above the usual seasonal level, and are continuing to do so as they fret about potential future supply disruptions.

The shortage has been exacerbated by a lack of capacity at assemblers including ASE Technology Holding, a person familiar with the matter said. Chip assemblers like ASE represent the critical final stage in finishing and preparing a chip for use, but the company’s production expansion has been hindered by an equipment supplier’s tardiness in delivering new gear, the person said. A further squeeze to the global supply was caused by the Trump administration blacklisting China’s Semiconductor Manufacturing International(SMIC) in December.

Once European and US carmakers realised they had a problem, they appealed to officials in Taiwan, home to TSMC and other leading foundries including United Microelectronics, for assistance in stabilising their chip supply.

The American Automotive Policy Council, which represents major US car companies, sought out the Taiwanese government for help, according to people familiar with the matter. In addition, General Motors spoke to Taiwanese officials, and got them to help relay its request to TSMC, Bloomberg News has reported. The European Union has approached Taipei about the same issue, and Volkswagen has separately reached out as well, according to a person familiar with the matter.

“We have requested that the US government help us find a solution to the problem because it will diminish our production and have a negative impact on the US economy until it’s resolved,” Matt Blunt, president of the American Automotive Policy Council, said in an interview.

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Because chip production requires a lead time of about three months, the impact will last throughout the first half and could bleed into the third quarter, Blunt said. His organisation is working with the Biden administration on the issue, he said.

Ford, Toyota Motor, Nissan Motor, VW and Fiat Chrysler Automobiles – now a part of Stellantis – are among global carmakers that have scaled back output due to a lack of chips required for a wide range of components, from brakes to windscreen wipers.

“There are more chips, more varieties of chips. It’s not one batch of chips that went bad and they’re struggling with recovering that one chip,” said Hough at Elm Analytics. “The ecosystem upstream of the OEMs stopped purchasing the chips they used in production as the manufacturing went down.” Another bottleneck lies with smaller automotive-chip designers which supply critical chips to the whole industry and depend entirely on foundries. They often lack bargaining power to secure timely production because of their modest sizes.

SCMP Graphics: Global carmakers and their venture partners in China

While automotive supply-chain managers are adept at containing short-term crises like the explosion in the northern Chinese port of Tianjin in 2015, they tend to be slower in making bigger changes that would help them deal with potential long-term disruptions, Elm Analytics’ Hough said.

Bosch, the German car-parts maker, said its chips supply has been significantly diminished because a chipmaker’s expansion and production increases were delayed by the pandemic. In an emailed statement, Bosch said it is in daily contact with suppliers and customers to mitigate the impact.

The shortage may start to ease as TSMC boosts its spending to a staggering US$28 billion for 2021, with the foundry pledging this month that automotive chips will be a priority. The company has begun to offer more capacity in recent days to at least one automotive chip designer, although the volume still isn’t enough to satisfy demand, according to a person with direct knowledge of the matter.

The situation isn’t as devastating as last spring’s car-plant shutdown that spanned the globe, said Sig Huber, a consultant at Conway MacKenzie and a former head of purchasing at Fiat Chrysler.

“This will be more sporadic, a plant here or a plant there, for a shorter period of time, as opposed to a full industry shutdown,” Huber said. “This will not have anywhere near the impact of the production losses we saw last year.”