This Company Was Ready for a Chip Shortage, Now They've Had to Cut Production

On October 15, Toyota Motor announced a 40% cut to its car and truck production due to ongoing struggles with the current microchip shortage, as well as factory shutdowns in Southeast Asia due to Covid. October's announcement marked the second consecutive month that Toyota announced cuts to production.

A return to Spring

Now, take a moment to journey with me back to the early Spring of 2021. Let's look at some of the headlines surrounding Toyota and the semiconductor shortage:

• "Why Toyota had a big pile of chips when semiconductor shortage dealt others a bad hand"
• Toyota Prepared For The Chip Shortage Years Ago. Why Didn't Anyone Else?
• "Toyota unfazed by chip shortage, forecasts rebound in profit"
• "Toyota Sidesteps Chip Shortage"

This isn't an attack on Toyota, and we aren't trying to point any fingers at the publications that wrote the above articles. No, this is an indictment of just how real this chip shortage is. The publications above had all the reasons in the world to believe Toyota would easily "sidestep" the scarce supply of ICs, microchips, and controllers.

A false premise

In the Spring, we all believed chip supplies would "loosen up" toward the end of the year, and it was this false belief—this false premise—that led to wide praise for Toyota's business continuity plan (BCP). The BCP at Toyota allowed the automaker to require its suppliers to stock up on enough chips that would last for two to six months—in case a supply chain lapse were to happen.

Now, nearly six months after the AutoBlog post above, Toyota has had to cut production for the second month in a row.

The lesson here isn't to simply say, "Hey, Toyota, stock up for longer than six months, why don't 'ya?"

It's likely that six months' worth of inventory was as much as suppliers were willing to hold for the Japanese automaker. After all, stockpiling chips—or overstocking any inventory—comes with its own risks.

A lesson learned

Permanent immunity to the 2021 chip shortage does not exist. Even companies that were best equipped to handle the shortage, like Toyota, now struggle to stock enough chips to meet production goals.

The end to the shortage almost feels like a mirage in the desert. We can see it just along the horizon and we keep venturing toward it, but it seems to keep moving along with us—staying just as far away. In February of 2021, experts expected the shortage to at least "partially ease" by the end of the year with some "tightness to extend into 2022."

Now, as we near the end of the year, industry sources are saying the shortage could last until 2024.

What will be said of the shortage in a few months?