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Chip shortage expected to cost auto industry $110 billion in 2021

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The ongoing semiconductor chip shortage is now expected to cost the global automotive industry $110 billion in revenue in 2021, according to consulting firm AlixPartners.

The forecast is up by 81.5% from an initial forecast of $60.6 billion, which the New York-based firm released in late January when the parts problem started causing automakers to cut production at plants.

Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, said a number of factors have contributed to the increase, including a fire at a plant near Tokyo for chip supplier Renesas and weather-related kinks in the automotive supply chain.

“The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas and a drought in Taiwan,” he said in a press release. “But all these things are now major issues for the industry — which, in turn, has driven home the need to build supply-chain resiliency for the long term.”

AlixPartners is forecasting that production of 3.9 million vehicles will be lost this year as a result of the shortage. That’s up from January’s forecast that estimated the shortage would cut production of 2.2 million vehicles.

In the U.S., the shortage has caused the Biden administration to order a 100-day review of U.S. supply chains. About $50 billion of President Joe Biden’s $2 trillion infrastructure proposal also is earmarked for the American semiconductor industry.

Automakers such as Ford Motor and General Motors expect the chip shortage to cut billions of their earnings this year. Ford said the situation will lower its earnings by about $2.5 billion in 2021. GM expects the chip shortage will cut its earnings by $1.5 billion to $2 billion.

Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts such as power steering and brakes. Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors, if not more. Higher-priced vehicles with advanced safety and infotainment systems have far more than a base model, including different types of chips.

“There are up to 1,400 chips in a typical vehicle today, and that number is only going to increases as the industry continues its march toward electric vehicles, ever-more connected vehicles and, eventually, autonomous vehicles,” Dan Hearsch, a managing director in AlixPartners’ automotive and industrial practice, said in a statement. “So, this really is a critical issue for the industry.”

AlixPartners expects the largest impact to production in the second quarter and then progressively get better during the second half of the year and into 2022, Hearsch told CNBC.

“By Q3, there’s enough to get everybody back up and running for the most part,” he said. “And then in Q4, we should get humming again and then next year get back to normal, hopefully.”

That doesn’t mean supply constraints will be completely solved next year, but Hearsch said automakers should have enough semiconductors to produce as many vehicles as they want.

The global automotive industry is an extremely complex system of retailers, automakers and suppliers. The last group includes larger suppliers such as Robert Bosch or Continental AG that source chips for their products from smaller, more-focused chip manufacturers such as Renesas or NXP Semiconductors.

Much of the problem begins at the bottom of the supply chain involving wafers. The wafers are used with the small semiconductor to create a chip that’s then put into modules for things like steering, brakes and infotainment systems.

The origin of the shortage dates to early last year when Covid caused rolling shutdowns of vehicle assembly plants. As the facilities closed, the wafer and chip suppliers diverted the parts to other sectors such as consumer electronics, which weren’t expected to be as hurt by stay-at-home orders.

Hearsch said the top priority for companies right now is “mitigating the best they can the short-term effects of this disruption,” which may include everything from renegotiating contracts to managing the expectations of lenders and investors.

Stellantis CEO Carlos Tavares said the automaker, which was formed in January through a merger between Fiat Chrysler and French automaker PSA Groupe, isn’t ruling out ways to be repaid by suppliers for the parts problem.

“It’s too soon to say. We don’t know yet the total of the financial impact … It’s going to be massive,” he said Wednesday during the during the Financial Times Future of the Car Digital Summit. “But it’s clear that it’s a competitive game … we will not exclude that possibility.”

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Bitcoin falls again, breaking below key $30,000 level that traders say could lead to more losses

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This is a developing story. Check back for updates.

The slump for bitcoin continued on Tuesday morning as the leading cryptocurrency fell below a key level and is trading at its lowest price since January.

Bitcoin was down 8% to $29,674.25, according to Coin Metrics. Traders had warned a break below $30,000 could lead to more losses.

Technical analysts had been watching the $30,000 level as a key support level on the charts after the cryptocurrency had fallen to near that low during its May crash. The analysts, who study charts to make buying and selling decisions, believe the next level to watch for support could now be as low as $20,000.

Now that it is approaching $29,000, the price of bitcoin is threatening to turn negative for the year.

Galaxy Digital CEO Mike Novogratz said on CNBC’s “Squawk Box” that bitcoin could still rebound after Tuesday’s move but there was significant downside to the next support level.

“$30,000, we’ll see if it holds on the day. We might plunge below it for a while and close above it. If it’s really breached, $25,000 is the next big level of support,” Novogratz said. “Listen, I’m less happy than I was at $60,000 but I’m not nervous.”

The prices of bitcoin and other cryptocurrencies have been battered in recent weeks by a stream of headlines out of China, where regulators have imposed new restrictions on energy-intensive mining and reiterated rules for financial firms about providing crypto services.

Environmental concerns have also become a new flashpoint for the asset class, with Tesla CEO Elon Musk suspending the use of bitcoin as payment for vehicles and saying that the pause would remain in effect until miners use more clean energy.

With Tuesday’s losses, bitcoin has slid about 54% from its all-time high of more than $64,000 in mid-April.

Other cryptocurrencies were also facing pressure, with ether falling 8% and dogecoin dropping more than 16%.

Significant pullbacks have happened before in the cryptocurrency market, with bitcoin falling about 80% from its late 2017 highs at one point. Professional crypto investors have warned that the space should continue to be volatile in the years ahead.

Bitcoin and other cryptocurrencies have gained more institutional support over the past two years, with major hedge fund managers and banks getting involved in the space.

The price of bitcoin rose nearly 500% between mid-September of last year and its April peak. Even with the recent decline, the cryptocurrency is still up about 150% over the past 12 months.

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GlobalFoundries announces new Singapore plant

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SINGAPORE — U.S.-headquartered semiconductor manufacturer GlobalFoundries announced Tuesday that it will build a new fabrication plant in Singapore to meet the unprecedented global demand for chips.

The new facility will be developed in partnership with the Singapore Economic Development Board and with co-investments from committed customers, GlobalFoundries said. More than $4 billion will be invested into the development, according to the company.

“Our new facility in Singapore will support fast-growing end-markets in the automotive, 5G mobility and secure device segments with long-term customer agreements already in place,” GlobalFoundries CEO Tom Caulfield said in a statement.

A global shortage of semiconductor microchips is causing havoc, delaying car production and affecting operations at some of the largest consumer electronics manufacturers.

A virtual groundbreaking ceremony for the plant was attended by Singapore’s Transport Minister S Iswaran as well as Mubadala Investment Company Managing Director and Group CEO Khaldoon Khalifa Al Mubarak, among others.

Mubadala, a United Arab Emirates state investment company, owns GlobalFoundries.

“The semiconductor industry is a key pillar of Singapore’s manufacturing sector, and
GlobalFoundries’ new fab investment is testament to Singapore’s attractiveness as a global node for advanced manufacturing and innovation,” Beh Swan Gin, chairman of the Singapore Economic Development Board said in a statement.

Importance of foundries

Semiconductors are critical components that power all kinds of electronics, from smartphones to computers to the brake sensors in cars. Their production involve a complex network of firms that design the chips, companies that manufacture them as well as those that supply the technology, materials and machinery to do so.

GlobalFoundries is a so-called “pure” foundry, with factories in the U.S., Germany and Singapore. Foundries are companies that are contracted by semiconductor firms to build chips. GlobalFoundries manufactures semiconductors designed by the likes of AMDQualcomm and Broadcom.

The global chip shortage has highlighted the importance of foundries, which are investing billions in new production lines and upgraded equipment to meet the surge in demand.

Taiwan Semiconductor Manufacturing Company, or TSMC, is the world’s biggest foundry by market share and revenue, according to TrendForce. It has about 56% market share, followed by Samsung (18%), UMC (7%) and GlobalFoundries (7%).

Semiconductor designers and manufacturers are trying to make chips smaller and better. At the moment, only TSMC and Samsung have the ability to manufacture the most advanced chips.

For his part, Caulfield told CNBC this year that GlobalFoundries is planning to invest $1.4 billion in its foundries to address the shortage. The company plans to expand capacity at all its manufacturing sites.

CNBC’s Kif Leswing contributed to this report.

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Right to disconnect could become the norm in Europe

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DUBLIN — With more people working from home than ever before, it’s time for a European-wide rule on the “right to disconnect.” 

That’s according to Alex Agius Saliba, a Maltese lawmaker at the European Parliament, who is leading efforts on this issue.

The right to disconnect refers to rules that say an employee should not be expected to field work calls and emails, or communications with their bosses, outside of working hours. 

In January, a majority of EU politicians backed a legislative initiative to call on the European Commission, the executive arm of the EU, to develop a bloc-wide directive on the issue.

“The political push is there because the visibility of overwork and this blurring between working time and private time has continued to be blurred during the pandemic because of the increase in the number of teleworkers, smart working, flexi-working so something needs to be done,” Agius Saliba told CNBC.

The idea of the right to disconnect has gathered steam since the beginning of the pandemic as vast swathes of the workforce worked away from the office, often in their own homes. 

Coupled with an always-on culture around smartphones and constant access to work emails, this can muddle the divide between work time and home life, and see managers overreaching beyond working hours with emails. 

Companies and individual countries alike have sought ways to address this issue over the years.

Back in 2012, carmaker Volkswagen blocked certain staff from accessing emails from the evening time until the morning.

In 2017, France introduced regulations that set tighter boundaries around when a remote worker’s obligations begin and end. In 2018, pest control firm Rentokil was ordered to pay 60,000 euros ($71,000) for violating those rules.

Earlier this year, Ireland introduced a code of conduct on the right to disconnect for all workers, where complaints can be brought to a workplace dispute board. 

In the U.K., meanwhile, the Trades Union Congress is advocating for that country to follow suit.

“We all need a good work-life balance with some proper downtime. But today’s technology can easily blur the line between work and home, with no let-up from work stresses,” Frances O’Grady, general secretary of the TUC, told CNBC.

“Unions in France, Germany and Ireland have already won rights for workers to disconnect. It is time that workers in the U.K. were protected too with a legal right to disconnect from work.”

Practical challenges 

Whether it’s codes of conduct or fully-fledged laws, there are difficult questions for employers to navigate when it comes to implementing any right to disconnect rules.

Be Kaler Pilgrim, founder of recruitment agency Futureheads, told CNBC that technical solutions, like limiting emails, won’t solely address the problem.

Building a culture that’s considerate of work-life balance can be much tougher. Employees at her company are encouraged to schedule emails to arrive in colleagues’ inboxes during working time rather than sending emails at all hours. 

“That cultural language of ‘it’s okay to switch off,’ that’s the one that’s harder to nail,” she said. “It’s about consistency and it’s about spotting when people are stressed, not taking those breaks and are trying to fit too much in their day.”

These initiatives get harder to implement with companies that have international bases across multiple time zones, according to John Lamphiere, regional vice president of EMEA and APAC for software company ActiveCampaign.

There are cohorts within ActiveCampaign’s European workforce that work regularly with colleagues in the U.S. and Asia, requiring late and early work hours. 

Lamphiere said an important part of the right to disconnect discussion is giving employees the latitude to work in a way that suits them. 

ActiveCampaign is currently devising a company-wide policy on best practices, but Lamphiere said it will not impose strict rules as there needs to be a “trust element in there as well.”

“If we impart very strict rules, then it negates the flexibility because it can’t be both.”

Blanket rules 

Emma Russell, a senior lecturer in occupational and organizational psychology at the U.K.’s University of Sussex, told CNBC that strict rules can cause problems of their own.

Russell wrote a paper in early 2020 that examined the various effects of the right to disconnect policies on workers.

“Some of the earlier attempts to employ right to disconnect policies were quite harsh in the sense that organizations would cut off access to email servers,” she said.

“Although it’s obviously coming from a well-intentioned place of wanting people to disconnect from their work, there are certain groups where that’s not going to be a suitable mechanism for them.”

A one-size-fits-all policy, especially schemes such as inhibiting access to email accounts, can be potentially detrimental as they don’t consider the flexibility that some people may want or need.

One example Russell pointed to was an employee with carer responsibilities that prefers to structure their workday in a particular way.

“This idea of a one-size-fits-all policy where you just say at 6 p.m. we turn off the email, that’s not very helpful for people who have different lives, who have different responsibilities, who need to be much more flexible in their work,” Russell said. 

“If we want to encourage a more inclusive and diverse workforce then it’s [about] trying to be mindful about the needs of those different groups.”

Agius Saliba said that the EU-wide law proposed by lawmakers would set a baseline and minimum requirements with flexibility depending on the needs of different industries and sectors. 

The issue of overworking and always-on work culture existed before the pandemic, he added, and the problem will only continue to accelerate in the post-Covid workplace whether it’s with office-based workers or remote workers. 

“I believe teleworking will be a reality that will continue to increase even post-pandemic compared to pre-pandemic numbers, so we have to be prepared as a European Union when it comes to legislation for teleworkers, when it comes to creating a level playing field between the conditions of office workers and the conditions of teleworkers,” he said.

“Fundamental rights of workers should be enjoyed by each and every worker.”

 

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