Semiconductor chip famine undermines automakers and economy security

After a difficult 2020, the auto industry’s hopes for a swift recovery have been dashed by a worldwide shortage of semiconductors. Unable to produce vehicles without these vital components, automakers have idled production and closed facilities with costs projected to run into billions of dollars.

This shortage might not be a one-off event. As automakers get their grips with new connected and electric vehicle (EV) supply chains, today’s semiconductor shortage must be viewed by industry and policymakers as a potential canary in the coal mine for future disruptions. Dependence on these components will only increase and demand from other sectors of the economy is just as high. 

Fortunately, Congress has already passed a solution. Now, it must make funding it a priority. 

The National Defense Authorization Act (NDAA) contains a $22 billion package to boost the domestic semiconductor industry, including a $10 billion provision to incentivize domestic semiconductor manufacturing and investments in research.

There are even companies waiting to break ground as soon as the incentives in the NDAA are funded. Samsung is weighing a $13 billion investment to build a semiconductor factory here in the United States — in either Arizona, Texas or upstate New York —  and Intel and Micron are also mulling new semiconductor fabrication. 

These provisions must be swiftly funded and to their fullest extent. Without the incentives contained within the bill, building in the United States would be unworkable. Semiconductor plants can cost as much as $15 billion to build, with a lifespan of five to seven years. The governments of Asian competitors pay for these facilities and it is why manufacturers opt for these nations over the U.S.

Without similar inducements appropriated by Congress to level the playing field, building these critical components domestically is infeasible. Not only will U.S. leadership in this emerging industry be lost, but a rich source of well-paid, skilled jobs that do not require a college degree would instead move overseas.

Funding such semiconductor efforts, combining market incentives with supply-side support, could also provide a roadmap for countering China’s vast minerals-to-markets control of the entire EV supply chain.

Countries and companies are pouring hundreds of billions of dollars into electrifying transportation as governments prioritize EVs to decarbonize their economies. Electrification is now a question of when, rather than if, as battery costs fall and the EV ecosystem develops.

Yet the supply chain is dominated by China — and the contrast with the United States is jarring. China holds direct or indirect control of 70 percent of the world’s lithium supply, whereas the United States has an import dependence of 70 percent. China produces 61 percent of the cathodes and 83 percent of the anodes used in batteries, compared to 0 percent in the United States. Of the 142 lithium-ion battery megafactories under construction worldwide, 107 will be in China. Meanwhile, only nine are planned for the United States.

Competing with this dominance requires a comprehensive solution that spans the supply chain. Consumer incentives, such as a reformed 30D light-duty EV tax credit and similar credits for medium- and heavy-duty vehicles, are vital if we wish to create the demand to support an upstream supply chain. And efforts such as expanding the Advanced Technology Vehicles Manufacturing Loan Program to strengthen U.S. battery manufacturing and the domestic supply chain for EVs are also vital to promoting U.S. energy independence and competitiveness.

Similarly, developing domestic resources and working with allies is also vital if we are to create a secure supply chain. If not, we risk becoming dependent on domestic policy in Beijing for the materials, components and vehicles that will power our economy in the 21st century. And China’s control over the EV supply chain is far bigger than the hold Saudi Arabia and OPEC has ever enjoyed over the oil market.

Funding the $22 billion semiconductor package in the NDAA is an immediate priority. Funding similar efforts to compete with Chinese EV leadership is vital if we are to finally have a transportation system that works in our national interest.

Gen. Michael Hagee served as the 33rd Commandant of the U.S. Marine Corps and a member of the Energy Security Leadership Council, a project of SAFE.

Ryan Popple is the co-founder and executive director of Proterra, a U.S. manufacturer of zero-emission, battery-electric buses.