General Motors (GM) has warned that the ongoing semiconductor shortage could reduce its earnings for 2021 by $2 billion.
American automobile company GM warned that its 2021 earnings could be cut by as much as $2 billion due to the semiconductor shortage. This was after the firm reported fourth-quarter earnings that outperformed Wall Street predictions.
Semiconductor shortage
The ongoing semiconductor shortage is threatening to impact the global automobile industry by causing production cuts.
The shortage has been attributed to the move by leading semiconductor manufacturers in 2020 to reassign their capacity from automakers to producers of smartphones, gaming systems and other gadgets, as the coronavirus pandemic pushed down car sales while these items maintained high demand.
The average automobile uses between 50 to 150 semiconductors, particularly in driver assistance systems and navigation control.
Several automobile makers have been forced to shut down plants or reduce production.
Ford halted production at its factory in Saarlouis, Germany, from January 18 to February 19 due to the global semiconductor shortage and weak demand. The facility produces the Focus, the firm’s most popular car in Europe, and has about 5,000 employees.
A Ford spokesman said: “We are closely monitoring the situation and adjusting production schedules to minimize the effect on our employees, suppliers, customers and dealers across Europe.”
“At this time, we do not anticipate any similar actions at our other European facilities,” the spokesman added.
Prior to this, the US automaker closed down a factory producing sport utility vehicles (SUVs) in Louisville, Kentucky.
Last month, Volkswagen said it will need to adjust production at plants in China, North America and Europe this quarter and this will affect production of the bestselling model, the VW Golf, as well as those from its Audi, Skoda and Seat brands.
Volkswagen Group purchasing manager Murat Aksel explained: “We are doing everything in our power to minimize lost production and to ensure that normal deliveries to customers can be resumed as rapidly as possible.”
According to Audi, it has furloughed 10,000 workers due to the chip shortage, which affected production and shift patterns at Germany and Mexico sites.
A spokesperson for Audi said: “We are currently looking at a range of countermeasures and alternatives designed to mitigate the impact of the supply bottleneck and, in turn, minimize the number of vehicles affected. Any improvement largely depends on the semiconductor industry.”
GM projected earnings
For the fourth quarter, the company posted an adjusted earnings per share of $1.93, higher than the $1.64 average analysts’ estimates compiled by Refinitiv. It also posted a revenue of $37.5 billion, outdoing analysts' forecasts of $36.12 billion.
General Motors CEO Mary Barra said the company does not expect to lose any production this year of its highly profitable full-size pickup trucks and SUVs due to the chip shortage. “It’s still a bit fluid, but our current outlook is that we’re going to be able meet the production schedules we had for the year,” she said.
However, Barra mentioned that GM will be prompted to partially build some models without the parts and then continue their completion later.
According to GM, the shortage would cost the auto maker $1.5 billion to $2 billion. Shares of the company fell by 1.3% in premarket trading following the announcement.
