Could Tesla’s Major Issue Lead to Its Downfall?

Tesla’s Biggest Issue: The Global Chip Shortage


Tesla, the leading electric car manufacturer, has been experiencing some challenges due to the global semiconductor shortage caused by the ongoing pandemic. The demand for electronic devices like smartphones and laptops has increased due to the work-from-home culture, leading to a shortage of semiconductors, which are essential components in modern automobiles. In this article, we analyze the current global chip shortage and its impact on Tesla and the automobile industry.

The Global Chip Shortage

The global chip shortage is a result of a combination of factors, including the COVID-19 pandemic, which caused significant supply chain disruptions. The high demand for electronic devices like smartphones and laptops also led to a surge in demand for semiconductors, which are used in their manufacturing.

Since modern cars are mostly computerized, they require semiconductors for various functionalities, such as navigation and collision detection systems. According to some reports, around 40% of the total cost of a new car depends on semiconductors. This makes the shortage of semiconductors a significant problem for automobile manufacturers, including Tesla.

Tesla’s Production Challenges

The shortage of semiconductors has affected Tesla’s production, making it difficult for the company to keep up with the demand for its vehicles. According to Elon Musk, Tesla’s CEO, the first quarter of 2021 had some of the most challenging supply chain challenges that the company has ever experienced. He attributed this to the global chip shortage, which has affected several industries.

The scarcity of chips has also led to an increase in the prices of some Tesla models. For instance, the price of the standard range plus version of the Model 3 increased from $36,990 in February to $39,990 in May. The Model Y Long Range AWD version also increased from $49,990 to $51,990 over the same period. However, the prices of the luxury Model S sedan remained the same at $79,990.

Tesla’s Response to the Chip Shortage

Tesla has been trying to manage the chip shortage by finding alternative suppliers and seeking to secure chips by paying for them in advance. According to the company, it has been able to navigate through global chip supply shortage issues by pivoting quickly to new microcontrollers and developing new firmware for chips made by new suppliers.

The company is also planning to buy a chip factory to secure its chip supply, which will be essential for the production of its vehicles. Tesla’s products require the most advanced mass production chips, which are primarily produced in Taiwan and South Korea.

The Impact on the Automobile Industry

The global chip shortage has also affected other automobile manufacturers, leading to production stoppages and delays. Companies like Ford Motors, Nissan, Subaru, Toyota, Fiat Chrysler, and Volkswagen have all been affected by the shortage of chips.

Companies like Renault and Stellantis had to suspend car production at several factories in Europe. The lack of chips has also forced automakers to prioritize the production of higher priced models and other more profitable models.

According to some reports, car companies will lose $14 billion in the first quarter of 2021 and about $61 billion by the end of the year. The shortage of foundry capacity, substrates, and components may also take a couple of years to address fully, according to Pat Gelsinger, CEO of Intel.


The global chip shortage has been a significant challenge for Tesla and the automobile industry as a whole. The high demand for semiconductors caused by the COVID-19 pandemic has led to supply chain disruptions and an increase in the prices of some Tesla models.

Tesla has been exploring various options to manage the shortage of chips, including finding alternative suppliers and securing chips by paying for them in advance. Buying a chip factory will also help secure its chip supply and enable it to continue producing its vehicles.

The automobile industry has also been affected, with manufacturers like Ford Motors, Nissan, and Toyota experiencing production stoppages and delays. The shortage of foundry capacity, substrates, and components may take some time to address fully, highlighting the need for companies to explore alternative solutions to manage the chip shortage.

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