President Joe Biden signed the $280 billion Chips and Science Act on Tuesday. His signature marked a bipartisan effort two years in the making. The focus is to reduce the reliance on Asian manufacturers which currently make up about 75% of global chip manufacturers.
The bill includes $52.7 billion earmarked for semiconductor research, development, manufacturing, and workforce development. Within that allotment is $2 billion legacy chips used in automobiles and defense systems, which was advocated for by Michigan Democrats Sen. Gary Peters and Debbie Stabenow.
The semiconductor investments align with Biden’s push to electrify the auto sector.
During his remarks at the Rose Garden the president opened up by saying: “I’ll tell you what, Detroit is making some really hot vehicles.”
Related: $52B semiconductor package is a ‘big freakin’ deal for Michigan’
Automotive takes up a small share of the global demand for semiconductors, according to the 2021 Semiconductor Industry Association report. It’s estimated chips in cars are only 11% of the overall chip market.
However, the future of auto is relying on chips being in full supply as more technology is added to vehicles and manufacturing shifts to electric and autonomous vehicles.
During his remarks, Biden said the average electric vehicle uses about 3,000 chips, meaning EV will need more than double the amount of what’s in a non-electric car.
AutoForecast Solutions, which tracks global vehicle production cuts due to the chip shortage, increased its estimate of vehicles lost to the chip shortage to 3.3 million vehicles.
Despite the shortage, the EV market saw a record high in sales during the second quarter of 2022. Nearly 200,000 EVs were sold, marking a 66% from last year, according to Cox Automotive.
The EV market was able to keep producing while internal combustion engine vehicles (ICE) stalled out. July forecasts show a 12% decline in ICE sales, according to Cox.
In part this is because automakers are prioritizing chips for more expensive vehicles like trucks, SUVs, EVs and other luxury cars to bolster their return on investment, said Michelle Krebs, Executive Analyst at Cox.
“It’s those kinds of buyers who are demanding those vehicles because a lot of other people have fallen out of the market,” she said.
Adding to the EV buzz were high gas prices. In Michigan, the average price at the pump was $4.82 in July.
“Whenever gas prices go up, we see EV shopping go up,” Krebs said. “When they come back down, we see EV shopping dip, and that’s exactly the trend we’ve seen.”
Those high gas prices were cited as a driving force for 77% of consumers considering switching to EV, according to a 2022 AAA survey.
A quarter of Americans said they will buy an electric vehicle as their next automobile.
Krebs estimates it will take another decade before the average consumer starts seeing EVs in every driveway. Currently, EVs make up a little more than 5% of the overall market. Krebs expects that to inch up to about 10% in the next few years.
The major obstacle is still cost. According to Kelley Blue Book, the average price for a new electric vehicle in June was more than $66,000, well above the industry average and more aligned with luxury prices than mainstream prices.
Other factors are still pushing the EV market forward like the expanding options for drivers. In just one year the market went from 19 to 33 models. This is where electrified options for big sellers, like Ford’s F-150,will make a big dent.
Krebs said she expects to see hundreds of options by 2025.
With all this momentum, will the $52.7 billion in chips funding push even more EVs onto the road?
Maybe, eventually.
Krebs kept the outlook realistic noting that it takes time to build semiconductor foundries and get the equipment necessary to produce semiconductors.
The White House said Tuesday that multiple companies, “spurred” by the chips bill, have announced more than $44 billion in new semiconductor manufacturing investments in the U.S.
Intel will officially break ground in Ohio for a $20 chip factory — an investment the company was holding off on until the Chips Act was passed.
However key ingredients in the semiconductor process remain in “politically challenging” parts of the supply chain, Krebs said.
Neon gas, which is at the heart of semiconductor fabrication, is largely sourced from Ukraine. More than 90% of U.S. semiconductor-grade neon comes from Ukraine, according to estimates from research firm Techcet. Ukraine is also a major supplier of xenon and krypton gases, also critical to chip manufacturing.
Until the supply chain can prove resilient to those “politically challenging” areas, the semiconductor supply will prove to be EV’s biggest question mark, Krebs said.
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