Car companies are halting production because their vendors can’t supply electronic components. Laptops are struggling to meet demand because they don’t have computer chips. Mobile phone companies are having to pay through the roof to source critical parts. And it’s all happening because the world is witnessing an unprecedented semiconductor shortage.

Semiconductors are a critical part of the modern world. They’re used in everything from iPhones to fighter jets, and without them, much of the technology that makes daily life possible in 2021 simply wouldn’t be able to exist.

Every time you step into a car or send an email, you’re using semiconductors. So, when the global supply of these precious chips begins to wane, it can be a big problem.

Take the auto industry as an example. These days, electronics account for roughly 40% of a vehicle’s value, according to a comprehensive analysis from Deloitte. And for those electronics to function properly, automakers need semiconductors. Without them, production lines stall, and supply can’t keep up with demand.

When the COVID-19 pandemic first struck in early 2020, chip orders initially collapsed. But remote work and studying have spurred demand for computers, while car buying has surged as people avoid public transport. That, in turn, has caused auto and electronics makers to re-up their chip purchases.

Amon said orders for chips that run computers, cars and many other Internet-connected devices are swamping the industry, which mostly relies on just a handful of factories in Asia.

The current crisis stems from several factors that converged last year. Like every chip designer on the planet outsources production to Asian companies, foremost among which are TSMC and Samsung Electronics Co. The pair are increasingly the only recourse for producing the most advanced semiconductors. But their capacity takes years to plan and billions of dollars to build in tandem with customers, and the post-Covid 5G phone and internet boom took their clients by surprise.

Industry executives also blame excessive stockpiling, which began over the summer when Huawei Technologies Co. — a major smartphone and networking gear maker — began hoarding components to ensure its survival from crippling U.S. sanctions. Led by Huawei, Chinese imports of chips of all kinds climbed to almost $380 billion in 2020 — making up almost a fifth of the country’s overall imports for the year.

Rivals including Apple, worried about their caches, responded in kind. At the same time, the stay-at-home era spurred sales of home appliances from the costliest TVs to the lowliest air purifiers, all of which now come with smart, customized chips. TSMC executives said on its two most recent earnings calls that customers have been accumulating more inventory than normal to hedge against uncertainties, a manoeuvre they see persisting for some time.

Also, the impact of this shortage isn’t uniform across the board. The likes of Apple can negotiate better than small-time vendors. Meaning, if you are in an industry that sources a lot of semiconductors then you have better bargaining power, plain and simple. Auto manufacturers, unfortunately, rely on third-party vendors who don’t source a lot of semiconductors. At least not on a relative scale. So they’ve been affected real bad.

Bottom Line — The semiconductor shortage is pulling multiple industries to its knees and now you know why.