Recovery of the world II

Supply chains has been disrupted for almost 18 months now, with the the global chip shortage being the most prominent area of disruption. Despite the rapid growth of tech stocks in the past year, it has been held back by the chip shortage that gradually becomes a more pressing issue each day. Many are hopeful that as the world recovers from the pandemic, the chip shortage might recover just as fast, however i beg to differ.

There are 2 main reason for the chip shortage issue to continue to persist even as the COVID-19 recovery begins.

Firstly, the increasing demand for chips. During the pandemic, the demand for electronics and consumer products spiked with over 10% growth in sales for PC in 2020. The Consumer Tech Association, an American trade group, said that 2020 was the biggest year on record with nearly $442 billion in retail sales revenue, and is projecting big demand for game consoles, headphones, and smart home products in 2021. The increase in demand comes also with the rise of EV cars, as $Tesla Motors(TSLA)$ and $NIO Inc.(NIO)$saw a dramatic increase in both sales and production. For EV cars, even missing a 10-cent chip would incapacitate the entire vehicle, which results in insane demand for both simple and complex chips. This demand does not seem to be slowing down due to the aid of the stimulus, the pent up demand amongst consumers and the rapid growth of technology.

Secondly, difficulty in increasing production. With the demand for chips coming from a majority of EV cars manufacturers, old production lines and factories are not able to manufacture new and complex chips made for the new area of demand. Even $Taiwan Semiconductor Manufacturing(TSM)$, which is responsible for producing about 80 per cent of microcontroller chips used in cars, is investing US$2.87B to increase production capacity. However, additional capacity is only expected to begin volume production in second half of 2022. The effects of such investments might take an even longer time to materialise.

In conclusion, the recovery of the world is well underway but the recovery of the global chip shortage still seems to be at least a year or so away. This brings about a good perspective of the fragility of the current supply chain and explains why countries like US and China are desperate to bolster its chip production and sustainability amongst increasing trade tensions. The effect of the resolution of the chip shortage on EV makers and tech companies might be something to consider when organising personal investment portfolio as well.