Toyota plans to reduce its global production by 40% due to the chip shortage

Due to the global microchip shortage, Toyota will cut its worldwide vehicle production by 40% in September.

The world’s largest carmaker had originally scheduled production of nearly 900,000 cars for the upcoming month, but has now scaled it down to 540,000 vehicles. This reduction is a result of the ongoing global microchip shortage.

Volkswagen, the world’s second-largest car manufacturer, has cautioned that it may need to reduce its output even more due to the impact of the Covid pandemic. The increased demand for electronic devices like phones, TVs, and gaming consoles, which rely on chips, has contributed to the ongoing chip shortage affecting the automotive industry.

German company Volkswagen, which had already reduced its production earlier this year, informed Reuters on Thursday that it anticipates the chip supply to be highly volatile and limited in the third quarter. They stated, “We cannot exclude the possibility of further production adjustments.”

In response to the global chip shortage, Toyota’s competitors such as General Motors, Ford, Nissan, Daimler, BMW, and Renault have already taken measures to reduce their production.

Up until now, Toyota had successfully avoided implementing production cuts, except for extending summer shutdowns by one week in countries like France, the Czech Republic, and Turkey.

Unlike many other automakers, new cars typically incorporate numerous microchips. However, Toyota was better positioned due to its larger inventory of chips, also known as semiconductors. This advantage can be attributed to Toyota’s strategic update of its business continuity plan following the Fukushima earthquake and tsunami that occurred a decade ago.

The recent increase in coronavirus cases across Asia, which has impacted supplies, has prompted the decision to reduce production. Toyota will implement some production cuts in August, affecting its plants in Japan and other locations.

The majority of the production cuts, totaling 360,000 vehicles, will occur in September and impact Toyota’s factories in Asia and the United States. In the UK, Toyota operates a car plant in Burnaston, Derbyshire, and an engine plant in Deeside.

In a statement, the company expressed its commitment to mitigating the impact of the global semiconductor supply shortage that is affecting the automotive industry.

“At present, our production operations in the UK are proceeding as scheduled at both facilities,” stated Toyota.

The overarching goal for Toyota is to compensate for any volume reduction by the end of 2021.

The chip shortage has impacted a diverse range of businesses, including car manufacturers and small appliance manufacturers.

The problems initially arose last year when Apple had to implement a phased release of its iPhones, and there were insufficient supplies to meet the high demand for the latest Xbox and PlayStation consoles.

Subsequently, numerous technology companies have issued warnings about the consequences of the chip shortage.

In addition, Pat Gelsinger, the CEO of chipmaker Intel, stated last month that the most challenging phase of the global chip crisis was still ahead.

According to Mr. Gelsinger, he anticipates the chip shortage to intensify in the second half of this year, and it may take one or two years for the supply to normalize.

In response to the shortage, US President Joe Biden signed an executive order and pledged to pursue $37 billion in funding for legislation aimed at boosting chip manufacturing in the United States.

As a result, Toyota experienced a 4.4% decline in its shares on Thursday, marking its largest daily drop since December 2018.

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By Ryan

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