Auto 2.0 Brings Electrification and High Technology Capabilities, Once the Supply Chain Catches Up

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Foley & Lardner LLPA recent analysis conducted by Goldman Sachs estimated that at least 169 separate industries have been impacted by the global shortage of microchips ranging from consumer electronics to automobiles.  Although the automotive industry is seeing short-term disruptions, expect automotive manufacturers to push full steam ahead with plans for electrification and bringing high-technology capabilities to near and mid-term models.

Few industries have been impacted as severely by the global microchip shortage as the automotive industry, which is expected to sell four million fewer vehicles in 2021, resulting in an estimated $110 billion in missed sales for the automotive industry worldwide.  While some industries have been hampered by increased demand for their products and decreased supply of microchips, automotive companies are facing the consequences of drastically cutting orders for microchips as the COVID-19 pandemic took hold over a year ago, expecting an uncertain economic future which simply didn’t materialize.  In an unexpected twist, a long-term economic downturn didn’t happen, but as automotive companies dropped orders, other buyers grabbed the increased supply leaving little room for auto companies to step back in.  Coupled with labor issues and transportation constraints, the chip shortage has only continued to compound issues for the automotive industry.  However, short-term supply disruptions aren’t slowing automotive companies’ plans for electrification and technologies in the ensuring model years.

As the 2021 model year ends, manufacturers are continuing to announce, almost on a weekly basis, new models or platforms for their EV architecture.  By 2024, it’s expected over 100 pure electric models are set to debut and some are estimating that by mid-decade, over 400 pure electric models are expected to come rolling off production lines.  While electric vehicles have only accounted for four percent of US auto sales in 2021 so far, it’s expected by 2030 that over one-third of all automotive sales in the US will be electric vehicles, and over twenty-eight percent of global sales will be electric.

At the same time as auto manufacturers push towards electrification, they are also looking to make vehicles more technologically advance than ever before.  From countless cameras, radars, and sensors to detect a vehicle’s precise location on the road, to complex computers to process this data and high tech communication systems.  With all these sensors, computers, and devices, current and future vehicles are more similar to a computer on wheels than a device converting fuel into horsepower.  One of the most promising new technologies is the integration of 5G cellular networks into the vehicle and highway infrastructure, allowing for low-latency communication between vehicles and transit authorities.  This mesh system will allow vehicles to communicate in near real time about navigational conditions, weather conditions, vehicle health, and countless other datapoints.   

While these new systems and powertrains continue to be on a horizon that is quickly approaching, resolving the supply crunch continues to be the number one priority for automotive manufacturers around the globe.  Although many expect chip shortages to continue for the near term, it is expected that these supply constraints will eventually normalize, granting space for increased production of the next generation of vehicles and their accompanying technologies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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