Toyota's Semiconductor Chip Stockpile Makes Rivals Jealous

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Its brilliant strategy is paying off.

By now we're all aware of the global semiconductor chip shortage that continues to plague automakers. These chips are vital for not only our smartphones and laptops, but also for new vehicles' Bluetooth connections, built-in infotainment systems, and driver-assist features. Production has been temporarily halted at a number of facilities until the supply chain is fully restored. Meanwhile, automakers are losing money, though there's one exception. Toyota surprised investors and rivals a few weeks ago by announcing its vehicle output would not suffer any disruptions because of a lack of chips. The reason is that it has a multi-month chip stockpile on hand.

Reuters learned from sources, including some Toyota engineers, the exact reason why the Japanese automaker is in an excellent situation. Exactly 10 years ago, Japan suffered a nuclear meltdown disaster at its Fukushima nuclear power plant following a deadly tsunami.

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The catastrophe seriously disrupted Toyota's supply chains, requiring six months to get back on track. Harsh lessons were learned, one of them being the realization the lead-time for semiconductors was simply too long. Toyota recognized this supply chain weakness and later issued its business continuity plan requiring suppliers to stockpile two to six months' worth of chips. These chips were exclusive to Toyota and could not be sold to other manufacturers, including those making portable electronics.

When the coronavirus pandemic struck and millions were stuck at home, consumption of personal electronics increased and chip suppliers preferred to supply the likes of Apple and Samsung because of greater profits. Automakers, except Toyota, were left high and dry.

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And now Toyota is actually increasing its vehicle output for the fiscal year set to end this month. It also increased its full-year earnings forecast by a whopping 54 percent. The automaker gained an early understanding of semiconductors even prior to the launch of the original Toyota Prius in 1997. This knowledge has increased and combined with the tsunami disaster fallout, it's now in an excellent position.

"From what causes flaws in semiconductors to gory details about production processes like what gases and chemicals you use to make the process work, we understand the technology inside and out," one Toyota engineer source said. "It's a different level of knowledge that you can't simply gain if you're just buying those technologies."

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Source Credits: Reuters

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