German carmaker giant Mercedes CEO warns against a possible delay in delivering orders of new cars for at least a year due to global chip shortages.

German luxury car manufacturer Mercedes-Benz could delay delivering orders for more than a year because of interruptions to production caused by global chip shortages, Daimler Chief Executive Ola Kallenius told a German newspaper in an interview on Friday.

"Demand is huge at Mercedes-Benz and at the same time there are unfortunately severe limitations," Kallenius told Frankfurter Allgemeine Zeitung.

"For some models the waiting times are longer than we would like, in some cases over a year," he added.

Kallenius has previously forecasted that the troubles with chip supply plaguing automakers worldwide would continue into 2023, as structural problems as well as pandemic-induced lockdowns in key supplier countries persist.

Automobile industry is one of the worst affected by the global chip crisis, especially since the beginning of 2021.

Despite the industry’s slow recovery of the supply chain, the Covid-19 spike in South-East Asia has again hit the process.

As a result, many car makers across the world announced production holidays one after another.

General Motors announced in early September that it would pause production at eight of its 15 North American assembly plants for two weeks.

Toyota is one of the most affected companies in the car industry, as it partially halted production in China in January and decreased output in five factories in the US, Canada and Mexico for the chip crunch.

Amid the deepening global chip shortage, Daimler and BMW plan to limit output of premium models and to produce more expensive cars to compensate for the loss of profit.

By shifting the volume-based approach, the luxury German carmakers look to deliver expensive automobiles to customers who want to pay higher prices instead of waiting. 

“We will consciously undersupply demand level[s],” Harald Wilhelm, Daimler’s chief financial officer, told the Financial Times.

“And at the same time we [will] shift gears towards the higher, the luxury end,” Wilhelm added. 

BMW’s chief financial officer Nicolas Peter also underlined the improvement to pricing power of his company in the last two years.

Another German luxury carmaker’s plan was “clearly to maintain . . . the way we manage supply to maintain our pricing power on today’s level,” he added.

What is the chip crisis?

Since the beginning of the coronavirus pandemic, demand for semiconductors or chips has increased because of much of the global population spending more time at home. 

The demand for tablets, laptops, video games, TV sets which need chips to be manufactured, has risen during the pandemic.

At the time, electronic companies rushed to buy more chips to meet the increasing demand for their devices. However, this situation created a chip shortage for auto companies.

Sanctions against Chinese tech companies have further exacerbated the problem. 

Now, every company is requiring chips for their products frantically buying to shore up stocks.

From driving assistance systems to electronic seats and windows, chips are heavily used in the car manufacturing industry.

Although initiatives have already started or are planning to produce more chips by investing billions of dollars, it takes a long time to meet high demand. 

Chips are produced in highly controlled environments known as “fabs,” where specks of dust and unsuitable temperature could damage semiconductors.

The chips industry could grow between 21 percent to 25 percent in 2021, with "electronics having its best showing since 2010," said Dan Hutcheson, CEO of chips-focused VLSI Research.

Source: TRT World