As economies open up and middle-class consumers, flush with pandemic savings and crypto gains, look for things to buy, it should be a big fat summer for the auto industry. The forecourts should be buzzing. Instead they may soon become increasingly bare. Indeed, Volkswagen is the latest OEM to email their top managers with the grim news that they should expect more production cuts. It is, said a long-in-the-face Wayne Griffiths who heads up the group’s Seat brand, the “biggest challenge” they face. The problem is chips. Specifically semiconductor chips. Robust demand coupled with several negative supply shocks, has meant there is now not enough chips to go around; and with touch screens, GPS and other ‘smart’ technology now standard in most cars, the auto makers are having to prioritise which models roll out of the factory gates. And it’s not just autos. Smartphone kingpin Foxconn has been talking about a double-digit supply reduction due to chip shortages, and Samsung recently warned of a ‘serious’ imbalance in the market. Even Apple has reportedly lowered H1 production targets for laptops and tablets. These shortages – say industry players – are going to stretch into 2022 given it takes two or three years to build a factory, and press go. It is no wonder governments are now waking up to the critical role of semiconductors and the need to build out manufacturing capacity to prepare for the connected future. Listen to NVIDIA CEO Jensen Huang speak about the potential of AI and how they are now able to automate intelligence to operate at the speed of light and the eyes of the layman widen. Whilst the smartphone revolutionised the phone industry, with AI – according to Huang – we’re about to see the same thing happen to agriculture, to food production, to healthcare, to manufacturing, to logistics, to customer care, to transportation”. The list goes one. Whilst the shortage of chips is a relatively short-term issue, the semiconductor space, led by themes such as the automation of automation set out by the NVIDIA chief, may well be one of the top investible themes for the coming decade.


The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.