Honda and VW prepare for a breakdown

Global automakers are once again bracing for production disruptions due to a potential shortage of automotive semiconductor chips, this time triggered by the Dutch government amid geopolitical tensions between the United States and China.

Honda engine This week became the first known automaker to cut production due to the problem involving chips from Dutch supplier Nexperia, which is owned by the Chinese company. Wingtech Technology Co..

The industry hoped a meeting this week between President Donald Trump and Chinese leader Xi Jinping in Asia would provide some relief, but no resolution on the chip issue was announced.

Volkswagen reportedly said on Thursday that it had at least until next week before its supplies would impact production, while other major automakers said they were monitoring the situation around the clock, to try to mitigate disruptions.

“Regarding the Nexperia chips, we have a cross-functional ‘war room’ in the building I’m sitting in that has this as [a] main work, ” Stellantis CEO Antonio Filosa told investors on a quarterly call Thursday. “And every day we encourage actions and projects to extend our period. There is daily management of what is a global, industry-wide problem.”

Such “war rooms” have become a regular practice in the auto industry amid supply chain disruptions, which have become more frequent since the Covid pandemic shook production and deliveries of many parts, including chips, starting in 2020.

Several auto industry insiders confirmed to CNBC that war rooms have been created at their companies, as they explore alternative purchasing methods. This included working with major suppliers to try to find alternative sources as well as buying on the open market.

“Automotive industry suppliers are working to understand the potential effects on production and continuity of supply,” MEMA, the largest vehicle supplier association in the United States, said in an emailed statement. “Chips and diodes are essential to automotive components and systems, from infotainment systems to door handles, steering and braking. Even the absence of a single diode or chip can disrupt vehicle manufacturing.”

The situation involving Nexperia began late last month, when the Dutch government took control of the company in what was seen as a highly unusual move, apparently after the United States raised security concerns.

In making the decision, the Dutch government cited concerns that the company’s technology – which specializes in large-volume production of chips used in automobiles, consumer electronics and other industries – “could become unavailable in an emergency”.

China responded by blocking exports of the company’s finished products, sparking concern in the European auto industry.

German automakers are particularly susceptible to Nexperia-related disruptions because they rely heavily on large domestic suppliers, known as “Tier 1,” and local manufacturing facilities and companies, such as Nexperia, even though much of their production is shifted to China.

The Association of European Automobile Manufacturers said this week that automakers were on the verge of shutting down production lines due to the chip shortage, which comes four years after a shortage of such parts amid the coronavirus pandemic.

“This means that assembly line shutdowns may only occur in a few days. We urge all parties involved to redouble their efforts to find a diplomatic way out of this critical situation,” ACEA Director General Sigrid de Vries said in a statement.

The affected chips are existing semiconductors used in basic vehicle functions such as windshield wipers and window controls – parts for which sufficient alternative sources are lacking, according to S&P Global Mobility.

A Nexperia spokesperson referred to a previous statement from the company, which summarized the current situation and indicated that it was seeking an exemption from export restrictions and working to mitigate the impacts of the decision.

A Wingtech spokesperson condemned the Dutch government’s actions on Thursday, saying the company “will vigorously defend its rights and will use all legal avenues to do so.”

“Only by restoring full control and ownership rights to the company’s legitimate shareholders and management, and ending political interference in corporate governance, can the Dutch government begin to repair the damage to its reputation, ease international tensions and safeguard its own and Europe’s economic security,” the spokesperson said in an emailed statement.

The impacts of Honda’s production reductions include all of its major North American plants, including large vehicle assembly and support facilities in the United States, Canada and Mexico.

“We are currently managing an industry-wide semiconductor supply chain issue, making the strategic adjustments to production necessary to carefully manage the supply of available parts and meet the needs of our customers,” Honda said Thursday in an emailed statement, calling the situation “fluid.”

The impacts are expected to continue to spread to other automakers if a solution is not found.

Ford engine CEO Jim Farley said last week that the chip issue was at the forefront of conversations during his trip to Washington, D.C., earlier this month. He called it a “political problem,” saying the company was working with the U.S. and Chinese administrations to resolve it.

“This is an industry-wide problem. Rapid progress is really needed to avoid production losses for the entire sector in the fourth quarter,” Farley said, adding that automakers had become “very good” at maximizing purchases of components such as chips after the 2021 crisis.

General engines CEO Mary Barra made similar comments last week, calling it an “industry problem” that will hopefully be resolved soon.

“While this may impact production, our teams are working around the clock with our supply chain partners to minimize possible disruptions. The situation is very fluid and we will provide updates throughout the quarter as appropriate,” she said during the company’s quarterly earnings call.

Other auto industry executives from Volvo, Mercedes-Benz and more have also shared similar thoughts with investors and the media.

“This is a politically induced situation… meaning that the solution to this problem, or the resolution of this problem, lies in the political space, primarily between the United States and China, in this case with Europe being sort of caught in the middle,” Mercedes-Benz CEO Ola Källenius said on an earnings conference call on Wednesday.