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Published on January 19th, 2021 | by Daniel Sherman Fernandez

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Audi Production Stops Due To Chip Shortage

10,000 less cars will be produced in this quarter.

German automotive giant Audi is the the latest auto manufacturer to be hit by a shortage of chips (semiconductors) for their high technology new models that are increasingly reliant on new 5G, hybrid, electric and autonomous driving features. Some 10,000 plus employees will also be put on leave as the company waits for chip supplies to increase. Audi AG released a statement this week that its manufacturing and shift cycles have been affected at their factories in Germany and Mexico. 

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Production of the A4 sedan and A5 cabriolet has been provisionally halted in Neckarsulm, Germany until January 29. This negative news comes as Audi vehicle sales in China rebounds and demand picks up giving Audi its best quarter sales in a very long time. Audi management have commented that their overall output for 2021 would not suffer as a result of this production stoppage as Audi would make up for lost time in the third quarter of this year.

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With demand for new cars falling for most part of 2020 due to the COVID-19 pandemic, auto manufacturers around the globe and tier-1 suppliers have reduced their inventory for obvious reasons. 

Automotive semiconductor vendors have canceled orders to external buyers, while internal capacity was halted or slowed either intentionally or as a result of reduced labor availability and factory closures due to the pandemic.

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However, with industries opening up in the last couple of months and automotive demand increasing, there are signs of disruption in the supply chain. Last month, German tier-1 suppliers Continental and Bosch, as well as car manufacturer Volkswagen, had stated that the slow start-up of semiconductor manufacturing could affect vehicle production around the world and it was confirmed when Toyota, Honda, Fiat and Ford shut down their production in various locations due to chip shortages. 

The demand from global auto manufacturer for new generation chips is competing with the rising demand for smartphones, servers and technology related machines which came from the ‘work from home’ culture in the last 10 months. Add to this was the sudden rise in the demand for devices such as personal computers and new gaming consoles which gave chip manufacturers higher margins over profit margins they earn from auto manufacturers.

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The auto industry is using more semiconductors than ever before in new vehicles with electronic features such as Bluetooth connectivity and driver assist, navigation and hybrid electric systems. Semiconductors are typically silicon chips that perform control and memory functions in products ranging from computers and cellphones to vehicles and microwave ovens.

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