Automotive Industry Reinvigorates Chip Demand
The semiconductor industry, which had its spells of ups and downs throughout all last year, has recently been sustained by one other complementary sector: the automotive industry. With higher interest rates and slowing consumer demand, companies have trodden their situations cautiously, cutting costs and keeping expenses at a bare minimum to meet their earnings. In turn, these cost cuts damage several other businesses that solely sell their products and services to these same companies. This is true of the semiconductor industry, which is fully reliant on the demand from sectors such as computing, military systems, appliances, and several others. In the latter half of 2022, demand and sales of chips drastically decreased in most of these segments, quite proportional to the increase in interest rates.
The one segment, however, that has been holding up sales of semiconductor companies has been the automotive industry, specifically electric and autonomous vehicles. Innately, EVs require more chips than gas-powered cars do, thus the recent strides in companies such as Tesla have been ever so beneficial to several semiconductor businesses across the globe. Recently, Tesla has made a hefty promise to increase production, scaling up over 14 times their current levels to 20 million cars by 2030. With a revival in the automotive industry post-pandemic, several have questioned whether demand will continue to remain high throughout 2023. With relatively high prices for cars at dealerships, coupled with lower average household savings across the nation, it will be interesting to see exactly whether the automotive industry really has such a strong pillar set for chip sales, or if semiconductor companies will be able to bounce back amidst tech companies’ promises to continue building and innovating.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
