Toyota was one of the few (only?) companies to keep a large stockpile of chips on hand to continue production in case of a supply interruption. They kept something like two years worth on hand.
I guess 18 months of doing the extremely heavy lifting for the whole industry has taken its toll and now they're in the same boat.
After the 2011 earthquake they came to the conclusion that for some hard to source parts you have to keep a big stockpile.
Basically if a part can only be produced by one or two parties there is too much risk of that source going away and disrupt everything else. This also applies all the way down the chain so if you got part A that can be made by 20 contractors but if all of those contractors depend on the same source then that part is also on the list of "stockpile this part enough to get over most disruptions"
Not really, Toyota handled the shortage the best and was the last to cut production. The supply disruptions simply lasted too long to be possible to compensate for.
Yes, they more or less invented the concept of just in time delivery, but they also suffered supply chain issues after the Fukushima earth quake. After the latter incident they made the risk calculation that inventory of some parts was worth the expense.
Reminds me years ago my company used 16X2 LCD modules for a couple products. You could buy them from two dozen manufacturers. Then one day a Typhoon went over the only factory in the world that made the driver IC's.
We tried to order 100 and were told the lead time was 36 weeks. We got through it with existing stock, scrounging displays from dead boards. Buying different displays and replacing the backlights. Small orders of 10 here, 15 there. And pushing a few customers out a month or two.
And then they invented that maybe they should keep poorly sourceable parts at hand. And chips are those. Unlike nuts, bolts, metal and plastics. Which you can easily find replacements for.
Plastics have actually experienced a pretty significant shortage this year, with resins and other components being hard to source[1]. Polaris, for example, would build their entire vehicle except the seats, then build and attach them once the plastic resin for the foam became available[2].
Yep there is an entire risk profile stage that many people leave out. And they apparently correctly estimated the risk in this case. At least for now. Probably wasn't reasonable to estimate such a long supply chain disruption though (that it's still happening now).
It is different to keep large inventory of everything because you are inefficient and can't function without it and different to decide to stockpile specific parts because of perceived potential risks while being efficient with everything else.
One big advantage of low inventories is you do not have to fix or trash lots of parts if they were made out of spec. In the case of chips the odds are they are all good. It is just the cost of ownership but not the cost of refitting.
It should go without saying that there are nuances in implementation. What I'm describing here is a fundamental tradeoff of JIT systems. If you get the wrong thing delivered it throws a bigger wrench into things because you don't have the buffer. Can you make this rare enough that the amortized cost is low enough to make JIT overall cheaper? Of course, that's why everyone does JIT.
> If you get the wrong thing delivered it throws a bigger wrench into things because you don't have the buffer.
JIT, in Lean, does not mean no buffer, it means as little of a buffer as you can get away with. If you have issues with delivery like this on a regular basis, then you'd increase the buffer size (at least temporarily) and also take your suppliers to task for sending the wrong thing over and over.
The buffer size should be increased if any upstream supply issues exist that regularly cause a shortage. Ideally, you should address those issues themselves, but if you have and they can't (or won't) be fixed then you increase your buffer to accommodate reality. However, the shortage is itself a signal. Too high an inventory permits supply issues to persist without being addressed for a long time because you never get the signal about the issues with them (the downstream production slowdowns).
> JIT, in Lean, does not mean no buffer, it means as little of a buffer as you can get away with.
Yeah, spot on. One of my college professors used to compare it to a river with rocks in it. If you want to safely sail on the river, you can either a) keep the water level high enough or b) remove the rocks. In a production system inventories/buffers are the water level and variance is the rocks. The philosophy of JIT is to remove as much variance from your system as possible so you can lower your buffers. If you have identified areas of high variance you're forced to keep buffers until you've removed enough variance to lower your buffers.
> JIT, in Lean, does not mean no buffer, it means as little of a buffer as you can get away with.
Eh... I would argue that JIT means making that buffer someone else's problem.
I was doing EDI at a logistics firm that contracted with Seagate who provided HDDs to Hitachi for their SANs around 2006. Hitachi was doing JIT for their manufacturing, Seagate however was just speculating Hitachi's demand and literally stockpiled HDDs in this firms warehouses geolocated next to Hitachi's factories.
We would pickup stock from Seagate and ship it to these warehouses where they would remain Seagate's property until Hitachi requested it, then we would simply transfer ownership to Hitachi.
Interestingly, we used rail shipping as a buffer to reduce warehouse size by sending freight on slow/cheap/indirect routes.
In this case you have two buffers. Seagate/you have a buffer for the outflow based on expected consumption rate. Hitachi almost certainly has some buffer of their own. This is not unusual with physical goods where you have the transportation time and cost to consider (which you/your employer took advantage of).
If Hitachi couldn't consume your delivered HDDs as fast as they were delivered and anticipated any kind of delay/disruption could ever happen, they'd have some buffer of their own.
In this case Hitachi didn't have a buffered supply. The warehouses were located literally across the street. The products were palletized at Seagate's factory in quantities matching Hitachi's product lines then delivered to the warehouse in a cadence closely matching Hitachi's consumption rate. So when Hitachi placed an order, a pallet was pulled and the ownership of the serial numbers on that pallet were transferred to Hitachi as it was delivered.
The logistics firm was the buffer allowing Seagate's product rate and Hitachi's consumption to be asymmetric in nature.
The last bit works, as long as the slow transportation is closely controlled. I tried it once, in the end warehouse space was cheaper.
EDIT: What you describe sounds more like VMI, vendor managed inventory, than JIT. Both require half way reliable forecasts and collaborative planning so to worl properly. Have to agree so that both solutions tend to push inventory risk to suppliers. Done correctly, overall inventory does decrease so.
JIT and VMI go hand-in-hand, they aren't mutually exclusive. Implementing JIT is to impose VMI on your suppliers.
The interesting thing was that Seagate avoided managing inventory by outsourcing to the logistics firm. The stock was technically Seagate's until it was ordered by Hitachi but the logistics company took immediate possession as pallets rolled out of the factory.
> The last bit works, as long as the slow transportation is closely controlled.
It didn't need to be controlled, just scheduled. You knew you need x units by d. The factory output n per week, so you could stagger shipments by way of different lines.
All of the inventory was tracked by serial numbers and it was interesting to watch it move because supply was often delivered to the warehouse out of order or shipments weeks apart arrived simultaneously.
The way I used was VMI to avoid the limited flexibility of JIT, bit yes both concepts tackle the same problem. What you describe sounds like a lot of fun to run on a daily basis, would have loved to do that!
They changed after 2011 earthquake when several factories couldn’t continue production because parts were not coming from factories impacted by earthquake.
Because people equal JIT with close to zero buffer inventory. JIT is basically a concept of defining the correct and minimal buffer. If that's close zero, cool. If it's more than zero, cool as well. It also puts a lot of emphasis on lot sizes and lead-times. No one in the right mind would implement JIT for stuff involving sea freight without buffer stock close to production.
There are pre-conditions for products to be set up as JIT. As you mention, short lead times, but also things like high quality, high availability, and others as well.
Toyota and a lot of the concepts that come out of Toyota are ideals to strive for. It doesn’t mean everything is like that, which is hard to understand from just reading the lean literature.
Also can depend on how high value the part is. I remember one time our purchasing agent bought 10,000 units of something. Took 5 years to use it all up. Normally they were $0.25 but some company canceled a huge order leaving the distributor with about 50,000 units overstock. We got them for $0.05 each.
I don't think that's exactly true and actually may be a common misconception - see https://www.youtube.com/watch?v=b1JlYZQG3lI for a much better explanation than I could provide.
Chips also go out of production suddenly (with only a couple years warning - which isn't anywhere near enough time to replace them all). thus any major manufacture has stockpiles of chips that are no longer in production that need to last until production of the widget switches to new chips and have enough left over as spare parts for existing widgets.
> Chips also go out of production suddenly (with only a couple years warning...)
No they don't, automotive semiconductors suppliers have an "obligation" to manufacture the component for at least 15 years, which makes managing the production output planning, spare parts etc. much easier. It's not like walking into your supermarket and finding out that your favorite brand of chocolate is no longer available. There are minor exceptions, and sudden changes in the demand might affect the immediate availability, but at the very least the part is almost guaranteed to be produced for 15 years with defined notice policies. Microcontrollers don't have a pin-compatible drop in replacement when they get discounted, but many different ICs do, like power supplies, transistors etc., so discounting them is not a big deal.
> Participating products are available for a minimum of 10 years from product launch (15 years from product launch for many products developed for the automotive, telecom and medical segments), and are supported by standard end-of-life notification policies.
Some of them get that, and car manufactures have learned the hard way how important that is and so demanding it more. However there are still a lot of parts where they can't get the 15 year supply in anything that meets the other requirements.
This is a misunderstanding of lean manufacturing. Lean is not about eliminating every stockpile, it's about thinking through your supply needs and only stockpiling what is necessary.
Were manufacturers stockpiling what was unnecessary before lean manufacturing? It's an absurd notion that anybody would stockpile things without consideration of inventory costs.
Think of each stage of the system, not just the components you bring in but also the partially assembled components you produce along the way as well as the finished product. US auto manufactures (in particular) had an operating method where they kept inventories high at all stages. This wasn't entirely deliberate. They weren't saying, "We need 5000 car doors just sitting here." They were, instead, saying, "We can't stop making doors just because everything else down the line is stopped due to <event> so keep churning them out and pile them up." The tail end inventory of "complete" vehicles were sitting there due, often, to quality issues (misaligned assemblies, missing parts, whatever the reason may be).
So inventory piles up everywhere along the chain, which also worked because there was a large turnaround period when retooling and equipment downtime (not always planned). Because Nobody Ever Gets Credit for Problems that Never Happened [0] there was an underinvestment in maintenance and improvement efforts. High inventory across the line papers over this issue. Lean discourages high inventory in order to make these issues apparent so that they can get the attention that they deserve. Also, rework is viewed as waste so quality issues should be addressed when they're discovered, not by assembling hundreds or thousands of vehicles incorrectly and then fixing them, fix the assembly line issues causing that misassembly.
Sort of, it would come down to suppliers would historically only sell in large quantities to maximize their production efficiency, so the per unit production cost would be minimized by running a long production run. But this would potentially cause scrap if the final product did not sell well to expectations or if there was a design error, and then also increased working capital as the inventory levels would spike really high with infrequent supply from the vendor instead of being more constant with more frequent replenishment.
And then multiply across everyone in a supply chain for a single product having to deal with waiting to receive giant parts orders from their vendors before they could start their own giant order to supply their customers.
They did stockpile everything due to not having a plan or consider costs. That also had the strange side effect of constantly running out of parts. In some way, stuff worked by accidentally having the right stuff on hand at the right time in sufficient quantities. TPS is all about having a plan for this stuff.
It is smart to project to the world that just in time manufacturing is effective and then stockpile parts.
This will get you ahead of competition if there is a problem like we experience now.
Most auto companies don't take delivery of chips except for managing production of a few key modules like engine controllers. Most of the chips in your car are in components made by suppliers with circuit boards often made by a second tier supplier. Combine that with many chips having no alternate and I don't see how Toyota could really stay exempt from this problem. OTOH not every chip maker is having trouble keeping up.
Toyota doesn't have to physically hold the chips/modules to accomplish they. They have contracts with suppliers that lock in how much inventory the supplier has to have on hand, and how much supply they need locked in from their own upstream suppliers.
One criticism of Toyota's production system is that they aren't so much "just in time" as it sounds on the surface, rather they just force their suppliers to run the warehouse instead of them. Which still makes sense - Toyota wants to be in the car business, not the warehouse and logistics businesses.
In that way - one could argue they "manage the logistics business" - but that they don't actually want to do the logistics (or own the inventory/warehouses).
I just wonder how deep this goes down the line of third party suppliers. Like, I know a lot of auto manufacturers use Bosch or Siemens for their ECUs, so I would think it’s really out of their hands. Then again, maybe they have terms in the contract to force Bosch to maintain a certain inventory?
Maybe this is a dumb question, but does anyone still produce cars without chips? It's possible, and in the current environment it seems like it would be a major competitive advantage-- and might be more reliable in general.
Cars in, say, the 1960s were not "more reliable in general." It's not all semiconductor-related of course--they also rusted out quickly in areas that got snow--but 5 years/50K miles is about what you were looking at for vehicle lifetime. Also much lower fuel efficiency, to say nothing of lack of what we'd consider routine safety features today.
Vehicles made a massive leap forward with the introduction of electronic components - fuel injection, oxygen sensors, throttle control. Not to mention essential safety components like traction control computers and anti-lock braking. There's no way a vehicle without these features would pass any sort of environmental or safety regulation today.
Ever since working on Integrated-Logistcs-Support I take issue when terms like reliability are thrown around. Because in the end it's a result of looking at Reliability (stuff not breaking down often), Availability (stuff being functional when planned to be), Maintainability (how easily stuff can be kept functioning and repaired when broken), Supportability (how easy spares can be get) and Testability (how easy it is to find defects).
On that, Availability is the result of all the rest. With the important part of planned Availability, because that excludes stuff like planned maintenance. Arguably modern cars beat old ones in that category.
I think that's true. What most of us care about in cars is that they work when we want to drive them someplace right now, won't leave us stuck on the side of the road, and don't have prohibitive (time or money) planned maintenance.
What's probably true is that older cars that aren't rusted out can probably be kept running by people with the appropriate mechanical skills even in the absence of proper factory/3rd party parts for longer than modern vehicles can. Given intact supply chains, modern vehicles are more available overall. But, to the point of the article, modern vehicles are more susceptible to lack of parts.
True, as an owner of a car from 1982 I agree. Requires a lot more preventive maintenance, e.g. oil changes every six months or 5-6k km, but runs perfectly fine when properly maintained. Also, I cam probably fix most issues with tools carried on board on the side of road. Enough to get to a proper workshop at least, I converted it to 2WD after killing a diff and drove for 200 km that way. If you cannot do that yourself, you're screwed so.
That being said, if I'd go on a 2k + mile trip I would put in some work to get the car fit for this. Looking at my dads VW camper, I'll just fill up drinking water, maybe gas and fuel. Without a serious amount of preventive maintenance those cars do have a tendency to break down so. I guess we are just not used to this kind cars or machinery anymore.
> Also, I cam probably fix most issues with tools carried on board on the side of road.
I think that is the largest appeal to me of older cars. There are only so many parts that can fail, and they are all repairable with some time and hand tools(and maybe a Haynes manual!).
(for people unfamiliar, a Haynes manual is a 3rd party manual customized for most makes/models of automobiles. It describes with pictures how to perform [almost] any repair.)
Yeah, the Haynes Books of Lies! Kidding, they are great. Also I found that original workshop manual are sometimes better. Fun fact, Haynes has an owners manual for the WW2 Panther tank.
Mine has a total of three 35 amp glass fuses. And dual carbs. I can confidently say there are no chips in there, excluding the radio and the rests of the snack variant on the back seat. Sometimes I'd love EFI, 17 l / 100 km just hurts...
I also remember when it was a good idea to carry spare fuses with you. I certainly don't in my current 10 year old vehicle and have absolutely no idea where the fuse box is (well I know the general vicinity where it probably is) without looking in the manual.
Oh, I have probably half a dozen or so in the glove box! The auxiliary circuit has a tendency to blow the fuse out... Still unable to figure out why...
In addition, breakdowns were a much more regular occurrence. It wasn’t unheard of for brakes to fail without warning. I hate computer-laden cars quite a bit, but as you say, cars have become much more reliable than they ever were in the past. (Written while parked in a 17 year old Toyota.)
My 1965 Volvo Amazon did 300 k miles before I scrapped it, in 1984, in favour of a 1976 Volvo 245. I only scrapped it because it wasn't worth anything, it was in perfect working order. The floor of 245 finally succumbed to Norwegian road salt in 1996 after 250 k miles but was otherwise in perfect order.
I don't remember how far my 1965 Austin Mini van had done by the time I scrapped it in 1978 but I'm quite sure it was much more than 50 k miles.
That was certainly not the norm however. I can clearly remember when 100K miles was considered exceptional and, as someone else noted, probably beyond what the odometer was designed for.
But most were short lived. The lifespan of cars has been getting longer and pointing to the exception that bucked the trend is literally survivorship bias.
The bias is more that we go through cars faster, generally, then they die. And once a car isn't used anymore, it just rots away. Or it gets exported to some developing country to happily life for another couple of decades. How that would work with modern electronics, I don't know. Probably as long as electronics don't brick the car it should fine I guess.
Is that true though? Average length of car ownership is at an all-time high of over 8 years. It was under 5 years just 20 years ago. Maybe length of ownership doesn't correlate to length of car life, but seems like a strong signal that car quality and lifespan is going up.
The fact that clunkers can be kept running at some level for an extended period of time (especially if they're not somewhere that the frame will simply rust out from road salt) doesn't change the fact that what people in developed countries would consider reliable day-to-day transportation has a significantly longer life cycle than it used to.
Their automotive necromancers would call them the opposite for reliable because they have had to bring them back from the dead laboriously for generations.
Cars are 1.) expensive enough and 2.) required by many people to work in order to get through the day that, while plenty of people also want the latest and greatest, most value reliability and long lifetime a lot. (To the point where these are tracked pretty carefully by organizations like CR.)
You can add smartphones to that list: vastly more durable than the first generation, with shatter-proof glass, water-resistance, etc.
And you can also add laser eye and cosmetic surgery: have advanced by leaps and bounds in terms of safety and quality, while actually becoming less costly for the consumer.
"Without chips" is not really possible if you want to sell in first-world markets, way to many requirements (engine efficiency, safety features, ...) you would be hard-pressed to meet otherwise.
EVs in lighter classes that don't have ESC requirements would probably work. A bit of battery design work for the analog BMC would be needed to use lithium chemistry but shouldn't be that hard.
I don't think it's possible. At least not road-legal in Europe.
There must be hundreds of chips in a modern car: Engine, ABS, wireless key, cruise control, radio, audio, electric windows, gps, battery management, airbags, seat-belt check, sensors, climate control, ...
I'm not even sure you need to drop all of these. Lots of functionality could be centralized. The Apollo Lunar Module did everything with just one embedded computer. We've probably just traded more chips for shorter wires in many such cases.
Well cars talk over an internal network called canbus. Every endpoint (power seats example) can communicate. Upside is a lot from design to diagnoses. Downside is you don't go find a rotted wire and splice it anymore
I can’t think of any system in a car today that doesn’t use some chip somewhere.
Wouldn’t even power steering use it? Headlights?
Engines would have engine control units running some kind of real-time OS, anti lock brakes, anti traction systems, airbags, power locks with wireless keys. Climate control vs just “AC fan on”
Even some ignition systems have chips that do some kind of key exchange to start the car. (Yes you can bypass it but now you’re making a car that’s easier to steal)
probably not, regulation and crack down on pollution from vehicles. Have you ever rode in an older car that uses a carburetor instead of fuel injection? Nothing like the crisp smell of gasoline in the morning... or anytime you drive it.
Of course, you need some electronics. Let's rephrase: which cars from western mainstream manufacturers are currently the "lowest tech"? No infotainment, no digital dash, no touch-sensitive anything, as few sensors as is viable to still be road legal?
And a related question: modern cars are full of tech because that's what market demands. Can we expect the trend to reverse at some point?
>No infotainment, no digital dash, no touch-sensitive anything, as few sensors as is viable to still be road legal?
For compact/subcompact sedans/hatches and midsize sedans the OEMs typically make a super stripped down variant so they can advertise an insanely low "starting at" MSRP. Dealers don't typically buy a lot of them so they're very hard to find and you'll likely have little room to haggle on price.
Nowadays there's a pretty long list of mandatory electronics and everything has at least one bus network in it but if you want to minimize the number of extraneous modules on that network then a stripped down economy car is your best bet.
> modern cars are full of tech because that's what market demands. Can we expect the trend to reverse at some point?
No, they are nice to haves. anyone who is looking to save money on a car will buy a used car with those features because they get the cheaper price and the features.
James May on Dacia Sandero: "This car really does say that you have more sense than money. And if you happen to be astonishingly rich, think how sensible it makes you. It's anti-fashion, anti-consumerism, anti-obsolescence."
He probably means no digital instrument cluster, which isn't necessary for a rear view camera. Most lower-end vehicles put a dedicated screen in the mirror for the rear view camera.
No; it would be illegal in every major market, which if nothing else all require some sort of on-board diagnostics system. OBD has been required in California since 1988. India just recently required OBD on everything.
You cannot build a modern car engine without chips, let alone a car. Also, no way to hit safety requirements without chips (air bag deployment for example).
I mean yes, if you take that tautologically, since a modern car engine has a chip. But probably you could build an engine that meets modern requirements without. People forget how clever analog solutions can be. It would be a huge pain in the ass though, and take years.
No, not since the late 80s when electronic fuel injection became necessary to meet emission standards. The alternative, carbs, just isn't good enough anymore.
I don't even know if you can buy new off-road toys that don't have chips - four wheelers, side-by-sides, snowmobiles and the like. Pretty sure they all use electronic fuel injection these days, and that requires at least one chip.
Even before EFI, almost all dirt bikes and snowmobiles built since probably the 1980s have had electronic ignition. You have to go pretty far back in time to find a vehicle of any sort with a points ignition that has no silicon/transistorized electronics in it.
When I started driving in the 80s, there was always a real chance that the car wouldn't start, or have a problem starting. Even new cars. Now? Except for a dead battery, I haven't had that problem in years, and we don't buy/lease new vehicles very often (our two current vehicles are 4 and 17 years old). ICs are far more reliable than old school electronics/mechanics!
Ugh... in one of the these threads on HN someone said a manufacturer was doing that, or at least openly speculating about it, offering a low tech model. I think it was in France but my memory is fuzzy.
It is probably possible but would require complex mechanical solutions to meet modern efficiency and emissions requirements that would likely be far less reliable.
It is possible, but the cars will be taxed into oblivion, because of push to electric cars. This is nothing new in finland because nobody there buys new car anyways, and continues to recycle existing old cars. Though that will also soon become impossible due to rising taxes to get rid of the old cars. I'm not sure which here is supposed to be more eco-friendly in the long run, but I suppose if you make people impossible to own anything that'll eventually win?
If you have a taste for irony, my company makes critical components for semiconductor equipment. If we can't ship, equipment companies can't ship new equipment. If they can't ship, semiconductor fabs can't increase capacity to meet the demand and solve the shortage.
We went line down last week due to shortage of a chip for our component.
In reality, the shortage is somewhat self-inflicted, like toilet paper a year ago, but for whatever combination of real demand + hoarding, we can't get chips.
Just the opposite. Need to let people raise prices to encourage slack in the system. Let’s prices settle where chip makers can produce new chips.
There are market failures where the government needs to step in, but this isn’t one. Even with climate change (where they should step in) the government can’t get to the point of saying it’s ok for gas prices to be high.
We don’t want the government to pick winners and losers when it doesn’t need to.
It's a puzzle to me why companies like nvidia didn't just raise prices and instead left both customers and profit to the dirty world of scalpers.
I guess it's "brand damage" but I feel there would be something more fair and honest if in times of tight supply they ran their own ebay-like store and auctioned them off. It wouldn't feel like a price hike and prices could automatically settle as supply/demand reaches parity.
Some, like this MSI subsidary, were actually selling on ebay at scalper prices.
> MSI has admitted that one of its subsidiaries has been selling RTX 3080 graphics cards on eBay at almost double the MSRP.
> The controversy first appeared on Reddit, where users accused MSI of scalping its own RTX 3080 graphics cards on eBay under the name Starlit Partner. Since, it’s been confirmed in a Justia Trademarks listing that Starlit Partner operates under MSI Computer Corp and was first set up in 2016.
They probably did, the only cards they produce under the Nvidia brand are the Founders Edition cards and those are sold for MSRP. Everything else is made by their partners and those cards increased in price.
Yes, soon after posting I realised I was referring to Asus/MSI/Palit etc. rather than Nvidia. It means either two levels of auction or the Nvidia chip sale is a % of the end unit sale.
It's a Taiwanese company around since the 90s. They may be more Europe focused with a German office. I've never heard a US reviewer mention them but in the UK, they offer cards cheaper than the other brands. Beyond that, I don't know much about them. I've bought a couple of their cards and never had an issue so they get a thumbs up from me for N=2.
To over simplify, let's say that you have 100 people in the market: 90 people who can afford $100 per card and 10 people who can afford $200 per card. In typical times, you charge $100 per card and sell 100 cards, earning $10,000 in revenue.
Now you have a chip shortage, and you can only produce 50 cards. If you charge $200/card, you only sell 10 cards, earning $2,000 in revenue. If you charge $100/card, you'll sell all 50 cards, and earn $5,000 in revenue. So it can still make sense to keep the price lower if it makes you more revenue overall.
What you've described is nothing like a real market. Where are the people in your model who are happy to pay $110? $120? If there are 10 who'd buy it at $200, and 100 who'd buy it at $100, surely there'd be 50 who'd buy it at $130 or so.
That ignores the social aspect entirely, too. How many who were originally willing to pay $100 will later pay $200 when they see others pay that amount for the item and it becomes scarce?
1. Your comment doesn't even provide a prime facie argument against some forms of government intervention. E.g., we could let the market determine prices but mandate that fab equipment suppliers go to the front of the line.
2. Price is probably a red herring anyways. I'm willing to bet that fab equipment suppliers are losing out not on price negotiations, but on volume negotiations. I.e., they might even be willing to pay more -- even much more -- than other users, but can't buy in massive quantities so don't go to the front of the line.
3. Is there any (legal) mechanism at the moment that prevents chip makers from increasing prices?
4. Fab equipment producers are small consumers of chips but have such a disproportionately high impact on the rate of future supply. In the midst of a global shortage, we could straight up socialize 0.00...01% of chips produced every year and hand them out for free to fab equipment manufacturers without even effecting the short-term price dynamics. I'm not actually advocating this, but the assertion that earmarking a small number of chips for a particular high-value use fundamentally skew the market in the short-term is probably false.
5. Even if markets can eventually work in this case -- and for the record I'm convinced that this is a perfect example of contract negotiators being extremely myopic -- market dynamics have non-O(1) time complexity and the chip shortage is wrecking havoc on the real economy.
My comment wasn't suggesting price controls or socializing chip fabrication. It was suggesting that we very temporarily give special treatment to a very small consumer of chips that has an outsized impact on production rate, in the midst of a global chip shortage.
>It was suggesting that we very temporarily give special treatment to a very small consumer of chips that has an outsized impact on production rate, in the midst of a global chip shortage.
Why would we do that if the fabs themselves don't think it is worth paying their equipment manufacturers enough to afford their own chips?
Giving "special treatment" is a price control. It is forcing a transaction that otherwise wouldn't settle at that price.
> Why would we do that if the fabs themselves don't think it is worth paying their equipment manufacturers enough to afford their own chips?
Because there is a global chip shortage that is making life substantially worse for the vast majority of Americans. And because markets are tools used by man, not the other way around.
Specifically, prices on new and used cars that most Americans depend on -- for better or worse -- to do basically everything in their lives (including getting to work, getting to school, getting food, etc.)
> Need to let people raise prices to encourage slack in the system
You're assuming that increased profit margins will automatically increase supply chain buffers. But rather, the same incentive to hire too many financialists that "save the company money" will exist, and the extra profit margin will just go to increased dividends.
And increasing the supply chain buffers won't help much right now either, it has to be done during good times. In fact I'd say most of the shortage is from companies deciding to increase their buffers, in the same way as what happened to toilet paper. "Hoarders" and "speculators" are easy illustrations to point to, but the real demand comes from regular consumers silently buying twice as much as they usually do.
> You're assuming that increased profit margins will automatically increase supply chain buffers.
I read GP's comment as increase prices to decrease hoarding, which in theory could provide the slack in the system. Problem might be that certain products may not be viable if prices get too high. Only those with sufficient margins prior.
I don't see that raising prices would make consuming companies want to stock up less. A company that requires an input to manufacturing is going to have a pretty steep price-demand curve for every individual component. Even if prices for one of their scarce inputs doubles, they're still going to buy as much as they can rather than risk shutting down their entire production if they run out. Since their competitors are feeling the same pressure, they'll just raise their own prices to compensate.
It's like foodstuffs during the early pandemic - when you finally found something that they had been out of, you didn't particularly care about the price, and you generally bought extra so you wouldn't run out if it went missing again.
> they'll just raise their own prices to compensate.
That's how it works in econ 101, but not necessarily in practice. Prices on many goods are less flexible than commodities like oil and lumber, for many reasons. Manufacturers may be locked into fixed-price contracts or distribution agreements, for example. Or a scarce component might be shared across "budget" and "premium" product lines, but the budget line is too price sensitive to change so the premium product goes up 10x instead. Or the company just borrows money and eats the loss...
Sure, but the alternative is for a company to shut down its production line rather than pay extra for parts it needs. None of your examples would seem to include that happening.
I agree they'd probably pay extra for the parts, but that might not just get passed on in their system price. It can manifest in all sorts of other ways (debt, discontinuing a different product line, cutting back on research, etc).
In today's environment debt is cheap, so companies that might otherwise shut off a production line can afford to borrow and bid up the price of parts.
"Just the opposite. Need to let people raise prices to encourage slack in the system."
"We don’t want the government to pick winners and losers when it doesn’t need to. "
Markets are not even remotely close to as efficient as you're implying.
In a clinch, people are making all sorts of crazy guesses at what the future will bring, making everything very inefficient. Remember that efficient markets depend on rational acting based on good information. We often don't have very good information at the unit level, and, we often act irrationally.
Some company flush with cash, decides to buy things at crazy high prices thereby denying the 'critical sources' (those that support production) access.
Right now there is a lot of parts hoarding - speculators buying up parts to sell them at higher prices. They're adding no net value to the system and causing all sorts of other problems.
The clearing of those prices may happen over time, but not without terrible damage being done.
Supply chains are not like stock markets with clear prices and instant transactions.
You may not need the government stepping in, but you definitely want non-market actions. For example, chip makers may want to work with their supply chains to ensure a kind of absolutism or preferential customer tranches.
FYI this already happens, all the time. Price is not King for parts, like it is on the stock market. Vendors of 'everything' are aware of the long term growth of their business, and will generally want to work with consistent buyers.
So in this FUBAR panic, supply chains have to think not about one thing, about many.
I believe that root causes was already a fait-accompli at the start of the pandemic when a bunch of parts of the supply chain shut down - we're still paying the price of trying to get things going.
What makes you think the most critical uses have the most money to pay for chips? I'd imagine there's a lot of crappy (or in any case not critical) consumer products that have much higher margins.
There is more money in consumer markets because there are more customers, not because each customer can pay more. It's usually businesses that spend big on individual purchases.
> Need to let people raise prices to encourage slack in the system.
The scalpers can absorb the rising prices until the desperate companies no longer can afford the increase. That will cause the market crash, which is not good for anyone.
I think government should regulate that space so that businesses engaged in scalping could no longer purchase nor sell the chips.
>The scalpers can absorb the rising prices until the desperate companies no longer can afford the increase
The whole point is for manufacturers to raise the price until desperate companies/consumers can no longer afford it and don't buy them. Im not sure where scalpers come in. If prices are set high enough, scalpers can't make a profit.
It does have negative external effects, as you observe, in the sense of a viscious circle. But even a viscious circle, mathematically, has positive feedback, resulting initially in a positive exponent growing against time, not a negative exponent damping out in time.
Doesn’t positive feedback require a positive loop gain? Right now, not enough chips are available to make new chips. So the loop gain is less than zero, damping the output recursively.
I have always understod "positive feedback" as "feedback that prompts the existing change to continue in the same direction, with equal or larger speed".
So positive feedback on a falling signal would tend to make it drop more. And positive feedback on a rising signal would cause it to rise more.
So, basically, for any signal S at time t, we would expect something like S(t+1) = S(t) + S'(t) * k, for some k > 0. And blatantly abusing derivatives for "should probably be a delta between S(t) and S(t-1)".
But, then, I am not a control theory specialist, I don't even play one on TV.
The problem is, if the feedback signal is too slow in getting back to the thing which measure error (i.e. too much phase lag), then negative feedback can turn into positive feedback and this leads to an instability.
One of the most complex pieces of the semiconductor fab is the building itself. Even with plans and permits in hand, it takes years to make one that can output at reason throughput and yield.
This report is from 1999 and it hasn't gotten easier.
"Typically the product life of a semiconductor chip (nine to 12 months) is less than the time required to construct the facility and install the equipment for manufacturing (24 to 36 months). As such, the construction/commissioning process is a rapid, constantly overlapping and complex set of events. In addition, construction of semiconductor facilities is very complex and costly (about USD 1.2 to 1.5 billion) due to the extraordinarily sophisticated processes and equipment required to manufacture semiconductor chips."
"Typically the product life of a semiconductor chip (nine to 12 months) is less than the time required to construct the facility and install the equipment for manufacturing (24 to 36 months).
That's an absurd underestimate of market lifetime. I'd bet that fully 80% of the chips available in 1999 when that report was written are still in production today (or would be, if not for the crunch.)
Yes, and same situation in every mining-related commodity market. Multiple time delays of order several years. Large up-front investments. Large uncertainties in payoff. Look at the multi-year price behaviors in those markets and see too if there is much stability.
I'm also confused by the confusion here... probably naive pattern matching? Reminds me of TAing undergrad courses where you could get more than half the class to confuse "positive feedback" and "negative feedback" on a midterm by just giving examples where stability = bad :)
Grandparent gives the choices of ‘positive exponent growing against time’ or ‘negative exponent damping out against time’. Here we have a positive exponent damping (reducing) the output over time, because it’s value is less than one, resulting in a negative loop gain. The Wikipedia article linked up thread defines positive feedback as having positive loop gain, and negative feedback negative loop gain.
IIRC, generally a positive loop gain greater than one will lead to diverging behavior aka instability, whereas even a positive-sign to feedback, if loop gain is "less than one" will not. I might be brain-farting here, but I cannot be precise anyway, which IIRC gets into plotting poles in a complex plane. (Cue joke my applied math professor would tell, about why all the Polish people were asked to sit in the right-hand aisle of an aircraft.)
Negative feedback means the feedback coefficient is negative, you are trying to redefine the usual meaning.
It is like saying that I tested positive for COVID-19 WRT my health because I don't have the virus, it is not what a positive test means and it will confuse anyone who knows the correct terminology.
No! It's negative WRT chip production rate! I have a phd in controls and meant what I said; I assume roboticsresearcher also knows some freshman-level control theory ;-).
Stability ==== good in undergrad engineering, but not here. We DON'T want production rate to be stable when we have a global supply shortage! Here, a negative feedback loop is stabilizing the system in an undesirable equilibrium.
I.e., the function that's being controlled in "supply of chips", the stable state is "saturated supply", and the negative feedback loop that maintains that equilibrium is "starving chip fab suppliers".
(meta: people down-voting comments on control theory terminology by two different experts in this field at least makes me feel a bit better about the signal:noise ratio on the vote counts on my other comments in this thread ;))
Only partially facetious here: you have mistakenly decided that it it clamps at zero. If we consider the hoarding aspects, the feedback continues into net negative chip availability. Before long, there will be roving gangs of looters taking back the chips you thought you already had! ;-)
No, there is a shortage, leading to a shortage, leading to a shortage, ...
If it was negative feedback, the "error" (shortage in production) would lead to an error cancelling signal, and therefore an increase in production. Positive feedback has error leading to larger error, shortage leading to more shortage.
What experiences with which government would lead you to believe that bureaucrats -- most of whom have never run a company nor made a product -- would be capable of "managing the market"?
I'm not sure experience running a company is necessarily a good thing here, or at the very least, not pertinent. Wall St.'s and the American people's interests are not necessarily in line. The US' previous president ran some companies and did not really do a good job in this regard, either, wrt his trade wars.
You're simply wrong. The US's economy was doing _great_ under the previous administration, and even top Democrats agreed that it was right to put strong pressure on China re: trade.
Great for whom? Wall St. or the common American? Like I said, their interests don't necessarily align. Sure, maybe stocks were up (usually, not when Trump was threatening to shut down the government if he didn't get his wall, though), but that didn't trickle down to everyone and is far from a total picture of the economy. Also, your article doesn't support your claim. Schumer was praising Trump for being tough on China for the sake of being tough on China, not for managing supply chains well.
Seriously? You're using Donald Trump, who specialized in brand licensing and being a television character, as an equivalency to all the manufacturing engineers and supply chain specialists working to resolve the problems created by a global pandemic that's killed millions of people?
The amount of disrespect to highly skilled professionals in this thread working like crazy to respond to a massive exogenous shock, and then following it up with the idea that "well, the government should fix it" with no specific idea of how exactly, the government would fix it, is mind-bending.
This is a pretty axiomatic view that governments can never be as responsive or as efficient as markets. The more commonly accepted economic wisdom is that they are usually less efficient and responsive than free market forces operating under ideal conditions. There is a lot of room for market failures, inefficiencies and temporal dynamics to change the balance. The are plenty of examples of government regulatory bodies that have a nice anchoring effect on the relevant markets. The Federal Reserve Bank, for example, responds quickly to changing market conditions, looks at the data and intervenes at a speed that keeps pace with the rapidly fluctuating market it regulates.
The Federal Reserve hardly responds to market conditions. Their free and open printing of money is arguably the greatest risk to our economy. Milton Friedman has great resources on this, including a video series from the 1970s (based on clothing alone) called Free to Choose. Its on Youtube, amongst other places.
If republicans think that unemployment benefits compete with private businesses on labor, then I get to think that 0% interest money competes with labor for capital.
The fundamental problem is that the 0% lower bound combined with a deposit guarantee represents not only a minimum wage for capital. It also presents a job guarantee. A minimum wage doesn't guarantee you a job.
So yes, the Federal Reserve is not responding to market conditions at all. It's artificially holding up interest rates at zero or above. This is causing massive distortions in the economy that can only be fixed by a swiss-army knife of policies. Among one of the needed responses is "free and open printing of money". The world economy is already flirting with disinflation (a reduction in inflation). If you don't have negative interest rates you will need a whole load of "money printing" to keep the system standing in place.
The assumption that a scarce money system (i.e. guaranteed non negative interest) has a fixed velocity of money is absurd. Put interest at -5% and just watch everyone withdraw cash from their bank account. The velocity of cash would be basically be zero and the velocity of money on bank accounts would be extremely high. As the government is doing deficit spending all the money just piles up somewhere and ends up doing nothing. QE is even worse because you cannot spend centralbank reserves to buy groceries.
Ok, let's do the negative interest thing. It sounds like a big hassle right? Just think about the benefits: The first step after negative interest ratess would be to adjust the inflation target to 0% meaning perfect price stability. Actually, you wouldn't target inflation at all because the negative interest rate completely replaces the need for inflation. You would target the CPI itself meaning your goal as the government would be to maintain a CPI of 100 for all eternity. Any deviation would become inexcusable. Meanwhile today inflation is a hack to make a broken money system work.
Natural boom-and-bust cycles are a huge risk to economies as well, despite the fact that they're natural and don't have anyone for which we can point a finger at.
I don't know what you mean by "natural boom and bust cycles" but credit cycles and other financial cycles are just a property of the money system. Alternative money systems do not have this property.
The cycles only make sense because people like and want them. I.e. they love the scarcity of money. For example, in a depression the return on money is greater than the return on labor, people logically flock to money rather than labor even though real wealth is eroding as people stop working.
> The Federal Reserve Bank, for example, responds quickly to changing market conditions
The Fed was established by Congress and the Chair is appointed by the President, however the Fed is still a private institution. That independence makes it a very different organization than what most people mean by government.
It's unrealistic to expect people to hedge online comments about complex topics (like the one in question here) to the extent required to preclude "yes but" and "well akshually" type comments that complain about the lack of nuance. Yet despite these expectations being unrealistic everyone expects comments they disagree with to meet them.
We're in this mess due to our never ending quest for more "efficiency"
The government needs to recognize the fact that semiconductors are essential to national security and ensure we have the capability to produce our own.
Then what's the solution? Seems like the government is the only entity that can intervene if market forces are counter to supply chain resilience. This is partially the justification for agricultural subsidies in the US, so clearly there is precedent.
Toyota pioneered the "Toyota Way", which is now known as Lean or JIT manufacturing. JIT is famously susceptible to disruption from natural disasters. Over the short term, between disruptions, JIT tends to be more profitable than the alternatives. Over the long term, the market rewards companies that can handle disruptions. Basically, to answer your question, the market is punishing JIT MFG and rewarding resilience. Companies are watching it happen and learning from it. One indication of this is the current increase in inflation. Companies are switching from 1 month of inventory to 6-12, which is making suppliers scramble and driving up prices.
I am by no means against government intervention. Companies have short memories, and market forces will force eventually pressure a return to JIT. But now is the exact wrong time to intervene.
Time and capital investment. It's like this generation of people have never heard of production and supply disruptions, and were oblivious to such things being possible. Frankly, this doesn't matter very much, it's not a critical situation.
The auto market malfunctioning short-term due to a pandemic doesn't present a strong argument for government intervention. Tesla can't make batteries fast enough, there isn't enough supply, its restraining their auto production, the government must step in and fix the problem! It's nonsense. The government should not step in every time there is a short-term problem in a market.
Toyota won't sell as many vehicles. So what.
I know, I know, but what if people have to make due with a three year old vehicle. What if they have to suffer and endure those vehicles being made to last for five or six years. Ten years! The horror.
Toyota won't die. Time will pass, during which necessary investments and adjustments will be made. Supply will be increased. The problem will be fixed. It's as simple as some time and capital investment. The companies that maneuver the best will come out ahead, gaining an advantage on their competitors. And the world keeps on spinning.
Toyota has generated something like $90-$100 billion in operating income the past five years. They have the resources - and then some - to fix the problem. If they choose not to or can't that's their own incompetence, their competitors will eat their lunch. Never feel bad for a corporation earning $20 billion a year. If they can't get their production corrected, someone else will figure it out and reap the benefits.
It does not matter as much as is being portrayed. This is not an important problem and does not warrant the government burning its time and resources to step in and fix (assuming they can help at all). Governments have a lot of other far more important things to be focused on.
The U.S. government has decided that it's in our national security interest to remain a net exporter of crops.
If World War III broke out and all the borders shut down, America would still be able to feed herself. The U.K. wouldn't. There would be mass starvation in much of the first world, and people would say "the government should've done something."
All the diabetes is a pretty rough unintended consequence, I'll give you that, but shifting some chip fabs to our shores as a matter of national security doesn't sound like too bad of an idea.
While I agree there are definitively some downsides to ag subsidies, I think the real question is if the interventionist downsides are worse than the non-subsidized downsides. As bad as they are, I'm not sure that incentivizing unhealthy food is actual worse than famine.
Cratering agricultural prices so margins are so thin small farmers are driven out of business in favor of huge conglomerates, mind-boggling levels of food wastage on the order of billions of pounds sitting in warehouses until they rot.
I agree, those are all blowback of subsidies. But they are also side effects of food abundance. The downsides of food shortage seems much worse.
Maybe there’s an argument that we’ve moved passed the era of food scarcity when those policies were enacted and they should be modified. But I think a blanket claim that food subsidies are an inherent bad policy misses their point.
That blanket claim was never made. The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider calling for government involvement in the chip shortage.
This is a bit of a confusing take if you're using ag subsidies as evidence to keep the govt out of chip manufacturing but now denying that the subsidies aren't bad.
>The nightmarish results of agricultural subsidies in the US is an excellent reason to not involve the government
This sure sounds like you think it's a claim of subsidies being bad policy.
>The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider
How do you combine the view that "ag subsidies aren't bad" with "the government shouldn't be in the business of managing subsidies" when the definition of subsidy involves the government? At first take, this comes across as back-peddling to avoid dogmatic cognitive dissonance.
But I'll be generous and assume you did not mean that ag subsidies are bad in and of themselves, but the way they are handled is poor. So what do think is a more proper way to handle them? Should the focus be on different products? If so, which ones?
The point has already been made that ag subsidies are operating as intended and the downsides you refer to are downsides of abundance. I have a feeling that most people who have actually lived with food scarcity would find them preferable to the actual "nightmarish results" of too little food.
Subsidies in theory can work for some problems. My argument is that the US government is not capable of executing them in a competent manner. The collapse of family-run farms is a "downside of abundance" in the same way drowning is a downside of abundance of water.
Thanks for clarifying, although I disagree that a collapse of family run farms (while bad) is worse than scarcity of food, both at the personal and national security level. I personally wouldn’t want the government to necessarily optimize for “number of family farms” at the expense of other concerns
That's a false dichotomy. The choice isn't between food scarcity and food waste but between a normal industry and decades of enormous waste. Experts were complaining about the subsidies damaging the dairy industry all the way back in 1983 yet those same subsidies are still here forty years later. The US government is happy to smash a problem with a hammer made of other peoples' money but they have zero ability to foresee the consequences of their meddling or to stop themselves from continuing to smash long after the need is gone.
I’m not claiming a dichotomy in that family farms and food abundance cannot coexist; I’m saying you are using a metric (family farms) that is not the intended goal (national food security). So again, I’m asking what is the better alternative for implementing subsidies?
I don’t know if we’re just talking past each other, but it’s hard to make sense of your stance. If you think subsidies are a viable solution to some problems but the US govt can’t manage subsidies, are you implying the US should not use subsidies, even on the problems they would solve? If so, can you elaborate on govts that have used subsidies to solve similar problems by better implementation? When govt is, by definition, who wields subsidies these are difficult points to reconcile.
Pointing out less than perfect implementation isn’t really helpful unless you can figure out a way to improve it. Just saying “the govt is inept” isn’t helpful when they are literally the only organization who provides subsidies.
I don’t disagree with the problems you point out but they come across as flippant “see!? See how bad the govt is!?” Dogmatic axioms might make someone feel good without actually addressing the problem.
I’ll give an example. I think subsidies need to have clear metrics to measure effectiveness and sunset clauses. This would help prevent things like alpaca subsidies meant to assist in the Korean War somehow staying in place until the mid 1990s.
The point of the subsidies was national security, not “protecting the family farmer” or “minimizing food waste.” To that end, they worked.
The comment was a response to a suggestion that the solution to the chip shortage was government intervention. I don't consider giving a evidence to the contrary of an argument as pontificating.
Ok but point to the part of that comment which was evidence?
Claiming that the results of ag subsidies have been "nightmarish" with no further elaboration or citation does nothing to advance the conversation, it's simply a strongly worded opinion.
That's one way to look at it. Another is that those are side effects of having stable and affordable food prices. The solution being talked about in this thread of simply raising prices would literally starve people to death if applied to that case.
In direct opposition, Auto makers approach of minimizing inventory and producing "just-in-time" caused them to be vulnerable to supply chain or big market shifts
The article notes that Toyota avoided "just-in-time" supply for chips, and has benefited for a while from this. Their stockpile just ran out.
> New cars often include dozens of microchips but Toyota benefited from having built a larger stockpile of chips - also called semiconductors - as part of a revamp to its business continuity plan, developed in the wake of the Fukushima earthquake and tsunami a decade ago.
The trend IS NOT towards diversification. In the last 5 years since Trump's election, US multinationals were increasing their presence in China, not decreasing.
Google for example said to open "a small representative office" in Shenzhen 2 years ago, now it's a full giant RnD centre in the Ping An Tower where they shipped all of Pixel's development.
Apple had RnD offices in China for more than a decade, but they barely acknowledged their existence. Their people in the Kerry Plaza were prohibited by their contract to even show their employment for Apple in their LinkedIn profiles. Their Shenzhen RnD centre is where AirPods were developed, along with many other iPad, and iPhone sub-assemblies. Apple's VR goggles project had its start in Shenzhen as well.
Amazon had no presence whatsoever in China besides a failed Chinese Amazon.com launch. They left China, and then returned to move the whole of their Kindle, and Echo device development to Shenzhen. Now they are working on something rather cryptic there. Some suggest VR goggles of their own design.
Facebook... absolutely bizarrely opened their RnD centre in Shenzhen amid the COVID, just a floor below Google I heard.
Dell, Microsoft, Nvidia, Qualcomm, Intel — all conventional hardware makers were here since nineties, but I think they really doubled down on China recently as well too, to one up the dotcom upstarts in hardware.
Having your essential RnD office shut down, if something happens to/in China, would not be any much less ugly, and disruptive than having your access to microchips shut down.
In other words, the Silicon Valley is still going all in on China, despite 4 years of Trump, public scorn, trade war, rising costs etc.
In other words, they really gave up on any vision where they don't critically depend on China, and can run with critical assets in US only.
That sounds nice, but a singular entity within a government, entrusted with the necessary power to regulate the relevant parts of the market without too much coordination overhead with other government entities, is actually much more efficient at resolving market inefficiencies than the free market. Case in point: production of vaccines.
That's also obvious: the inefficiency in governments originates largely from coordination overhead between many competing entities with overlapping responsibilities. Self-regulating systems like markets do not eliminate that overhead, they just use other means of coordination that trade some of the complexity overhead for a time overhead - instead of having to coordinate a complex set of rules, you now have to give the system enough time to "find" its stable state. But when time is of the essence, an intelligent, singular entity without the need for coordination with anyone besides the entities to be regulated can always outcompete the self-regulating system when it comes to short-term stabilization (though not necessarily with regard to long-term stabilization, but that's not the issue here).
The US government regulated critical parts of the supply chain of raw materials and preproducts in order to ensure that US manufacturers have no sourcing problems. It then compelled the manufacturers into exclusively servicing the US purchase contracts first before fulfilling competing contracts from other global buyers with any of the finished product produced on US territory.
I'd call that quite a lot of "market management". But as everyone could see it resulted in the fastest vaccination ramp-up worldwide (excluding Israel, which was a bit faster, but is also much smaller than the US and which had its own way to get "preferred" access to vaccine produced in the EU).
This assumes an efficient global market, without interference from other state actors.
If other countries are implementing protectionist policies, like keeping semiconductors for themselves or supplying other nations first to curry favors or improved relationships, for example, it might be in another nations interest to increase fab capacity with its borders to avoid being vulnerable to those political and diplomatic factors.
DARPA funded the basic research. Then the actual Internet was largely built by for-profit private sector companies. That hybrid model seems to usually be the most effective for major new innovations.
DARPA funded most of the grant money used by research entities to create the various parts of the IP stack. That's not "basic research". Simply put, were it not for DARPA, we wouldn't have the Internet of today. We'd probably have something like it, but something a lot more closed off and walled garden-esque.
They can't even manage a trivial task like maintaining roads and bridges properly.
You could have hardly picked a worse example than the government roads system (including our thousands of dilapidated bridges), which is in absolutely horrific condition and is a humiliating example for the government. It's the opposite of a good example.
That's all due to lack of funding, one might suggest? They're not lacking for funds. They spent our money on blowing up other countries and then (occasionally) attempting to rebuild them. Vietnam, Iraq, Syria, Libya, Afghanistan, Korea and 497 other cases of meddling and foreign adventurism. There rests $10 trillion in infrastructure money. No, they have had plenty of our money to spend, and they chose to squander it.
What ever would we do if we didn't have those hyper incompetent clowns to manage our roads.
GPS is trivial. If Russia can do it, various US private corporations could easily do it just the same.
US private corporations maintaining roads implies a society like the one depictive in the Robocop movies. It's fun to see you prosing that unironically.
While a lot of industry seem obvious and worth the investment today, when they were nascent that wasn't the case. Would GPS exist if private companies had to fund the rocket and satellite research just to tell you where you are on the map? Or would the aircraft industry exist?
Most of those types of high-risk, nebulous reward (at least on short-to-near-term timescales) industries are predicated on government investment. SpaceX, as great as they are, probably wouldn't exist if they didn't have NASA as a customer.
it certainly does have hindsight bias, on both sides. The Satellite TV and Radio industries spend the money to launch.
Back in the 90s (during the age of early GPS), Motorola (iirc) tried to launch a satellite phone company too.
NASA isn't that big of a customer. DirecTV was a huge consumer of rockets. As it turns out, SpaceX doesn't sell to them because they own their own rocket company.
>The Satellite TV and Radio industries spend the money to launch.
Correct, but this is an after-the-fact understanding. They spend money to launch now because the industries are no longer nascent and being launched on platforms designed around government investment. The key to my point is that the government spends money when the industries are young and risky to develop platforms. If those platforms work out that helps the private sector have a less risky path down the road. This is why telecoms weren't rushing to develop rockets in the 1960s.
>NASA isn't that big of a customer.
This is very much the same thing. Early on, NASA was really the only SpaceX customer and NASA helped keep them from going bankrupt [1]. In addition, NASA made early launches more palatable because the government is self-insured. Government contracts help usher along young, risky companies until they could have a less risky business model that the private sector feels more comfortable with. It's very similar to aerospace development over 100 years ago with the Wright brothers and Curtis vying for Army contracts. Without those contracts, they are as much hobbyists as entrepreneurs.
The free market can do a lot when it has the basic requirements to operate, but the point is that government spending is the only solution when we end up with a chicken/egg problem as the OP pointed out.
Why? Is the government better at inventory and/or supply chain management than the current players in the market? My experience with COVID tests says no.
No, but the government can shoulder a larger risk than what the private sector may tolerate.
There's all kinds of examples, but aerospace is a classic one. There would be no airline industry or commercial space industry if the government wasn't willing to bear a disproportionate amount of the risk when these industries were nascent. There just wasn't enough market demand to incentivize the private sector to do so on their own. So the govt sets up an incentive structure that brings the risk to a level where the private sector is willing to partake. The government is also generally more tolerant of longer-term scenarios than the private sector.
No one is saying the government should start producing chips, but they can offer financial incentives to encourage chip manufacturers to build fabs here instead of overseas.
> A negative feedback loop in semiconductor supply seems like a situation where a government should just step in manage the market a bit.
Unfortunately, no Western government can do it even if its life depends on it.
German trade officials for example went and completely prostrated themselves in front of Taiwanese govt, and TSMC, offering anything short of switching the recognition of China to Taiwan.
It bounced off without any effect.
It was only a blank cheque from USA that made them to even scratch, and that is still pending that cheque being honoured, and cashed out.
The article (and others about this topic) indicate that the chip shortage isn't just a static. They all claim that chip and other supply chains (all based on South East Asian) are all under new pressure from delta strain spread.
In fact, I wonder how much of this really is chip supply vs general supply. Most articles on this open with headlines about chip supply, but then contains quotes from Toyota about "supply" and "parts" in general.
I can't speak for Toyota, but for my own electronics manufacturing business its definitely a chip specific shortage. We don't really have huge problems getting most stuff, but digital ICs are more and more just simply unobtainium, with vague lead times of 1-2 years.
Highly anecdotal, but I spoke to Bilstein about some seemingly unobtainium shocks yesterday. Pre-pandemic these part numbers were common as dirt.
They said their sales were up 50-60% over the last 18 mos, and that raw materials supply is down by a similar margin.
These are shock absorbers, not chips or toilet paper.
It seems like we're seeing the delayed effect on supply chains over the pandemic. There is surely no value in hoarding shock absorbers, and if distributors were the hoarders, they seem to just be sitting on them, not raising prices.
Much of the ECUs OEM are purchasing from Tier 1 suppliers (Denso for example - a Toyota spinoff) who are directly hit by IC shortage, so that's why they are talking about overall supply.
Also Japanese OEMs and suppliers tend to favor ICs from Renesas, and Renesas has been hit particularly hard this year [1].
> The Covid pandemic boosted demand for appliances that use chips, such as phones, TVs and games consoles.
SOCs in phones and game consoles are produced on very different processes than chips used in cars, no? Cars don't need the smallest dies or most energy-efficient chips. These industries are not competing for the same capacity. Or am I missing something?
They certainly overlap. SoCs aren't the only chips in game consoles or other devices, different kinds of chip production have shared supply chains that themselves are struggling, SoCs used in cars aren't necessarily that different from the ones in other appliances (e.g. NVidia Tegra X1 is used both in the Nintendo Switch and some cars, and probably a pile of other things) ...
Not everything is a purpose built CPU, GPU or SoC on cutting edge nodes. There are many general purpose ICs that are boring and ubiquitous: Display drivers, power conversion, amplifiers, microcontrollers, etc.
Hypothesis: there's a correlation between shortage of chips made with cutting-edge processes and chips that are not, because a lot of them are made by the same companies (and the supply-chain issues are impacting companies not just product lines). For instance, in addition to having the bleeding-edge 5nm node, TSMC has a lot of larger nodes and specialty non-digital-CPU nodes, too[1].
> SOCs in phones and game consoles are produced on very different processes than chips used in cars, no?
Yes, some of them are different. Consumer chips are not industrial norm, they have narrower environmental operating ranges.
The foundries producing automotive chips shifted production to consumer chips during the lockdowns, as the auto production lines were on hold. This caused supply chain disruptions. Add to that US > China IP export bans and you have a black swan event.
So new cars are going to be come more expensive due to supply limitations and in turn used cars will continue to become more expensive as they can rise to a certain % of the new car price. At the same time housing prices continue to sky rocket. Seems like not a great time for someone just stepping into adulthood and financial responsibility.
> just stepping into adulthood and financial responsibility.
I am older than that (40 and my wife is 35) and while we have been independent professionals for a while, we now have a 1 year old so this summer for the first time in our lives we bought a house and a car.
It was definitely harder to find a house (mainly less availability driving competitive bidding) and it took a little longer to find a car and we ended up having to pay MSRP.
However the thing I can say is - the incremental cost/hassle of having to do these things during the pandemic supply crunch is almost irrelevant compared to having to do this stuff at all. We paid say 3% more for the car and ok maybe 10/20% for the house than we would have otherwise, obviously that's painful but if I was "just stepping into adulthood and financial responsibility" I'd look to avoid this stuff altogether.
EG: do you need to own a house? If you're a single person, "throwing away" money on a relatively inexpensive rental might be much wiser than "investing" in a house in a seller's market. Likewise, if you're young and single then you should relatively easily (depending on where you live of course) arrange your life to not need a car. It was very easy for us in NYC, of course may be different for you.
The point is that in my mind, "adulthood and financial responsibility" don't have to translate "got my own house and car" but simply "making wise financial decisions given my situation" so if there's room to be flexible, be flexible.
When I was in my early 20s, someone gave me this exact advice. I didn't have much money and they said that real estate was too expensive and I should just invest/rent. Fast forward to today, I paid 8x more for my small sad house than I would have then and my investments on my small amount of money didn't make up the difference.
The market is so screwed up that even a crash that halved the price would still be 4 times price back then.
Finance guy here, two things. You are looking at it in retrospect. "I should have bought a house" is no different than "I should have bought X stock" when you're looking at the price history backwards. At the time, it could have gone up or down. EG we just bought a house, I have many reasons to expect that it could drop in value over the next bunch of years.
Second, you may not be doing proper calculations. I would not have - before I bought a house. Do you count property taxes, upkeep, larger water and electricity bills, possibly longer commute times/needing a car, relative lack of mobility, air conditioner/heating/roofing/siding/repair, lawn maintenance, etc.
Yes sure, if I bought this house 10 years ago, it would have been great. But I wouldn't know 10 years ago that I'd want this house, and for example dealing with all the above shit as a single man would have been stupid. There were also points in my life where I was very open to relocation for the right job, something home ownership would have put friction on.
it's very common to think of only a pro or a con of a decision (if I bought earlier, it would have only cost X) but you're not factoring the risk that existed at the time, nor the commitment you're creating on yourself, not the carrying costs I described above.
May not be relevant to you but I feel fine about "losing out" on 20 years of house appreciation (if I bought at 20 not 40) because I avoided all that stuff for 20 years, too.
My parents bought a detatched home at 20 with minimum wage jobs. I bought a townhouse at 40 with a high paying career. My kid is going to be 60 by the time he can afford a home.
Ok you certainly should go for it, but I'll give you one analysis that I have. We bought in a NYC suburb (for a bunch of reasons) and here's what I think constitutes price risk for me.
At the end of the day, a house is worth what someone can and is willing to pay for it. Right now, there's reasons the demand is high for near-NYC housing because (a) people aren't sure they need to be near NYC long-run and don't want to risk it (b) it's an easiest move to make to leave the city and not go far (c) supply is low because with covid, fewer people are willing to have an open house (d) now everyone is in a rush to upsize so space is at a premium.
All of these are demand factors that can change. EG: (a) it may become clear in 1-2 years that permanent remote is an option for many people, relieving demand pressure on NYC and the area. (b) once people are comfortable with leaving the city they may be comfortable moving further afield. (c) the pent-up supply of folks who didn't sell in 2020/2021 may come to market, especially if a and b occur, causing people to want to sell before it's "too late" (d) everyone who needed up upsize may have done it, relieving that pressure.
Also, for New York state specifically, with the number of wealthy people leaving the states, it feels inevitable that state and property taxes will rise, making all of this even less attractive.
And finally, interest rates are ridiculously low right now, rising rates will be a damper on prices when that happens.
Obviously there plenty of reasons it could also go up, but if your model is so simple "it's fucked so it's always goes up" you may get fucked too.
>They're not making any more of them, and demand and prices only go up (until maybe one day they don't, I don't know).
You can say that about anything - limited run beanie babies, bitcoin, whatever. It's all true until it's not.
In the case of classic Porsches, next time you hear someone say that, ask them (a) what's gonna happen once boomers die out. Do genX/Z/millenials give a shit about a classic Porsche the way a boomer would? (b) what happens if/when we replace ICEs with electric and the gas station infrastructure goes away (not saying it will happen but it's one likely future path.) In the world where you can't get gasoline, is a classic car still valuable?
I don't know the answers to these questions but unless the person who is giving you advice has modeled this out, their advice is of no value.
NYC (esp. Manhattan and parts of Brooklyn) is pretty exceptional in the US with respect to there being no expectation of car ownership. You can get by in other cities out of school (especially given app-enabled rides, Zipcar, etc.) but the general expectation is car ownership.
As for housing, it's perfectly normal to rent for a while until you know you want to settle down in a location for an extended period of time.
Wonder how much of that is driven by people actually being home to answer the door when roofers knocked during Covid. Completely anecdotal but I got a new roof during the covid lock down and so did 3 of my neighbors and its mainly due to being home to answer the door and the roofer being able to get insurance to cover the cost.
The point of my post was to give the OP some pragmatic advice, on the bigger-deal lever he has in his life. Obviously there's a marginal drop-off of who can afford X if X goes up even a little.
The difference being that lots of people want to keep those inflated housing prices high (nimbyism), whereas nearly everyone wants car prices to go back to normal.
Nimbyism exists, as do more concrete constraints in urban locations but...
The way house prices work, often, is more or less banks determining prices via mortgage eligibility. Banks agree that a house is worth X. They lend X. That becomes the price. Buyers tend to be available.
People are so quick to see that credit expansion fuels price inflation in other areas, even the economy at large, but somehow diminish or ignore this with housing.
Obviously, supply constraints avoidable or otherwise, affect supply. In any given year though, the supply of housing does not change a ton. Where they do, you don't tend to have wild inflation... though you do often see bigger houses.
It's impossible to decouple housing from monetary policy. Housing is one of the few ways that buying power gets from A to B, where B is not a financial institution or direct spending.
>> whereas nearly everyone wants car prices to go back to normal.
There is a significant voice that would like to price cars out of private ownership. Traffic, pollution, safety, urban sprawl ... pick your evil and someone wants to eliminate private cars for that reason.
I regularly read about how the next wave of cars will all be somehow "shared", that we will whistle and they will appear at our doorsteps ready to carry us off to our 9-to-5 jobs in shiny glass office towers. I just don't see that happening anytime soon. Total conversion to electric cars in 10 years, maybe. Conversion to total ride-sharing and/or mass transit, doubtful in 30.
There's huge inflation in many things related to making cars (chips, steel, shipping costs as many cars are still being shipped across the ocean, labor costs, etc.). We are likely to be in the very beginning of significant inflation cycle, with probably double digit inflation which will eventually drop to 4-4.5%. I wouldn't expect to prices to drop any time soon, nor have 2% inflation. My bet is that fewer and fewer new cars will be sold in the next few years (3-5) with prices rising 4-10% each year.
It's not just cars, the prices are rising across the board (not evenly), so we have pretty high inflation if you add in the items official estimates excluded.
This is mostly just a reflection of the fact that the value of the dollar has declined precipitously over the last 18 months. Dollar prices are sticky, so it can take a bit of a shock for inflation to “kick in”, but we’ve had plenty of shocks to go around.
I don't think it's fair to attribute "most" of this to inflation. Car prices have been rising much faster than many other components of CPI, so even in real rather than nominal dollars cars are getting more expensive.
The stuff people actually care about has been rising faster than CPI. Cars, housing, meat, metals, lumber, etc. are all going through the roof. Inflation is a vector, and any reduction to a scalar involves taking the dot product of that vector with a weight vector. Under my personal weight vector, and I suspect most people’s weight vector, inflation is a lot higher than CPI.
I'll add a bit of a pedantic point: the dollar hasn't really lost any value _against other currencies_ (DXY) over the past year. In fact, it is a little higher.
It has lost value against lots of commodities and "real" goods.
I don't think it's necessarily NIMBY or at least my understanding of it that makes people want to keep housing prices elevated. If I buy a house at an inflated price, I want the house value to continue to rise as a large degree of my financial security is tied up in that house. My ability to refinance, take cash out and eventually even sell that house are tied to it continuing to escalate in value. In the US this is particularly true as so much of out net worth is essentially our home value. As inflation increases and peoples ability to save is even further reduced this will become even more of an issue.
I would say it is more self perpetuating. With housing prices growing as they are, people are saving less for retirement and putting that money into their house with a plan to cash out, move to the country, and retirement.
Obviously most people can’t do this but a family member was recently approached by the dealer who sold him his most recent work truck. He’s driven like 30k miles on it in the past 2 years and it was a $75k Chevy diesel. Dealer offered him $90k to buy it back from him (to sell to someone else) and my family member said “Sure”. So he made $15k on an asset that should have lost 1/2 its value by now. Obviously rare and hard to take advantage of but some people are absolutely capitalizing on the weirdness.
I assume that in most situations like this the original person with the truck would have to replace that truck. In this case he now has to pay 90k for the truck he originally paid 75k for.
Perhaps, but it's not uncommon for these places buying new-off-the-lot high end trucks (my family members' included) to have a dozen+ vehicles at their disposal. He's planning on using his 5-year old similar HD truck until the market thaws a bit, but it's also overkill for most everything he does. One of the many work vans his business owns can likely do 95% of the work. They're mostly just buying the big ones for clout and due to generous tax writeoffs.
But what does he drive now? If the truck was just a toy that didn't need replaced, then good for him. But that's not the case for the majority of people.
There are lot of construction workers driving around 20 year old trucks. Those who own a company and don't use the truck as a limo to show off to customers value the extra money in their pocket. The more the truck is abused, the older it will be (concrete and rocks are abusive to the body of trucks so those industries get the oldest ones)
You can pull out home equity in a cash out refinance. Borrow at 2.5%, then roll that into index funds averaging 8%, and turbo-charge your retirement goals.
yeah. That might work out, but my investments are diversified more. I have real estate in the form of my house. I have stocks and bonds in my 401k. I have government in my social security. They are completely separate, so if any one fails I'm still okay. (well if the government fails I'm probably in trouble no matter what, but social security is limited at best)
My 401k does have some international funds. While it is good to have a bit, they are as you say higher fees and so not always a good investment.
I'm not sure they are really diversification though. The major US companies have a lot of international exposure already so you don't gain much diversification. And of course they don't really protect you from a collapse of the US government (odds are either they are hit as well, or you can't prove you own them anymore)
You fret about not being able to trade up because everything is expensive, but at least you live without dread of housing affordability. Find satisfaction with your position. Try to find a way to leverage it for the sake of your children.
Heard of someone who sold while the real estate market here is superheated and plans to rent until it drops. Personally, I don't expect it to drop for a while yet (it hasn't really dropped for decades here).
That's assuming you have the cash-flow to float the new loan. If you bought the home 5+ years ago, that might be true, but for anybody who bought recently, that's probably not an option.
I capitalized on it by buying a new car and selling my old one. I sold a 3 year old camaro for $1000 less than I paid for it. I didn't get very much off MSRP of the new car, but I got way more value from a three year old camaro than I ever expected to get.
What do you mean I can't capitalize on the upside?
Sure, my purchase costs went up some, but no where close to the additional value I got over normal for my sale. Put it this way, I paid a few hundred dollars, maybe a thousand dollars more for the car than I would normally, but I sold my old car for thousands more than I normally would have been able too.
If you trade up now, you will pay less for the new car than if you traded up two years ago.
Similar situation for houses. Even if we assume all houses have inflated by the same rate, you can still downsize and cash out. Your existing $600K house is inflated 25% and you can sell for $750k. You downsize to a $400k house which is inflated to $500k. You oversold for $150k, but only overpaid by $100k and you pocket the difference.
I bought another house and am renting the old one out. The new house has an interest rate at 2.3% while inflation is over 5% with conservative estimates.
It's been "not a good time" since 1975. Prior to that, at least in first world countries, you could start with less intelligence and have a much better chance at class improvement and even financially secure retirement than now.
On the other hand, if you're in politics, finance, or executive business management, it's been a really, really great last 40+ years.
> stepping into adulthood and financial responsibility
The timing of my life events is one of the things I am most grateful of.
I graduated in 2014 and within a couple years I bought a house. Strong job market for an employee and low interest rate.
I know people that were getting PhDs, because they started undergrad in the aftermath of the housing bubble and couldn't find jobs when finished. I also know people that decided to buy a house before the bubble and are still stuck underwater, preventing them to pursue opportunities not in their area. I also know people that went into medicine as tuition became ridiculous and have no way of servicing their student loans.
I guess what I'm getting at is count your blessings. Others may not be as fortunate as you.
but stop and think for a second about all those short term profits Wall Street made by outsourcing all of our crucial manufacturing! Those congressional bribes don't pay themselves either! /s
the worst part is our government is rewarding them for bad behavior, the article mentions the billion dollar chip subsidy program. So these companies made money outsourcing and will now make more by bringing it back. Instead they should put a massive tariff on any chip not made in the US. Companies that invested here would be rewarded for loyalty
What short term profits? The car industry has among the lowest margins in the entire economy.
Moreover the chips were never outsourced. Toyota never made its own chips, nor is it feasible to. You seem to have some sort of idealized view where a company internally manufactures everything it needs starting from raw materials. That’s not how it works, and that’s never how it worked.
"silicon valley" is the name because of all the chips that used to be made here, US used to lead the world in chip manufacturing
Toyota is just a symptom, every other car manufacturer and other industries are facing shortages as well. The US economy is now strangled because our supply chain got outsourced for "efficiency" that didn't account for potential disruptions
> Instead they should put a massive tariff on any chip not made in the US. Companies that invested here would be rewarded for loyalty
Voters would have rewarded politicians who supported these tariffs by voting them out of office for making all their toys more expensive. Everyone likes cheaper stuff and more stuff in the short term.
voters have complained about stuff being made in China for years and if it was framed from a nation security perspective you'd get wide bipartisan support. The current chip subsidy program literally just got wide bipartisan support, it's extremely popular
Now that the effects have been felt, yes. But not a few decades ago when the majority were enjoying cheaper goods. Even now, I do not see broad support for tariffs in order to bring production back to the country.
It's a bit too easy to blame this only on Wall Street. First of all companies have outsourced their production facilities to lower production costs. The parties benefiting from this were:
- shareholders (more profit)
- consumers (lower prices)
Second, you could say shareholders == Wall Street, but you could just as well say that shareholders are pension holders, banks, insurances and small private investors. All of these simply want to have return on their investment that is as high as possible. If that's good or bad is an interesting question, but the bottom line is that very few people are without blame here.
you'll notice I also blamed congress for effectively being bribed to allow this to happen. The government's job should be to prevent stupidity like this from happening, Department of Defense at the very least should have been sounding the horn of how our supply chain issues are national security issues
plenty of people have been warning for decades how the reliance on manufacturing from other countries could have major consequences. The fact that a small island like Taiwan is probably the most important geo-political issue in the world could have been prevented with a little bit of long term planning
I live 50km from work now (thankfully looks like mostly remote forever, the COVID silver lining), but I used to bike to work before I had kids.
I don't know that I'd do it again. The number of avoided-death-by-split-second close calls that I racked up in about five years is just too high... Now that I'm a bit older and have children, seems irresponsible.
This is in a city with relatively developed bike infrastructure, including separated lanes in some places. (Some) drivers just don't give a damn, and while I wish it was different, I don't see it changing any time soon either.
I’ve taken my son on an e-bike daily since he was 11 months old - he loves it compared to being in the car. There are a range of products on the market handling up to 4 kids and with creature comforts like rain shields.
For anyone with a small commute I’d recommend this too. Our Yuba (spicy curry) has around 3000km on it over 2.5 years, is going strong, and I’ll still be commuting ~30km per week over the next year with it taking my 4 year old to daycare then going to work. I’ll likely continue commuting with him on it to kindergarten and perhaps early grade school.
It wasn’t cheap initially ($7000 CAD), but the cost per km drops enormously every year while the bike still rides as well as ever. The kids have all loved it, too. My youngest is disappointed when we drive places - he wants to walk or ride all year.
We do have a temperate climate which helps. Our cold days in winter are typically around 5 degrees outside of cold snaps, but even then we rarely dip below 0.
It’s a major quality of life improvement for us. They’re amazing grocery getters, you don’t get all sweaty on them, kids tend to love it, and they’re quite a bit easier to buy, maintain, and park than a car.
We went with the spicy curry because of its insane cargo capacity (we’ve used it for its full capacity many times, especially while bike camping), but you can spend far less if you don’t need to carry that weight.
Seconding everything you wrote, especially “It’s a major quality of life improvement for us”. When we visit friends & family who live in typical car-centric neighborhoods we’re reminded of just how much time they spend sitting in cars, which is especially rough on kids. The bigger house & yard just doesn’t seem worth an extra couple hours a day sitting strapped into a car seat.
We've come to a similar conclusion. We're fairly priced out of our market when it comes to the yard and picket fence situation - with 3 kids, a 4 bdr home would cost us around 1.5M CAD to get something we'd actually enjoy livinh in and reasonably close to work. It would be old - maybe from the 60s or 70s. A similar sizes home we could afford would induce a 1-2 hour daily commute for my wife. Meanwhile, a condo near work that will fit us is around $500k less... Sort of affordable.
When you weigh the pros and cons though, the condo can be alright. It's not my ideal at all but the things like the yuba can make that lifestyle so much more livable. More time with the family, more time to get out of the home if we want to, quick grocery shops, less money on commuting, etc - I think it could be alright. We fortunately live in a small city where you're only an hour drive from nature, so I suppose we could turn that into our "yard".
The last thing I want is my kids sitting in a car for 30-60 minutes every morning on their way to school. Or on a public transit bus, transferring and rushing around so they can sit in school for 6 hours only to bus back the same way. I know plenty of kids do it and they're fine, it's all fine, but it's not what I want for them. I wouldn't want it for myself. There's something to be said about shedding ideals (especially with living situations) but letting my kids be kids is one I don't want to compromise on.
In the US city that I live in, cars get stolen an awful lot too. And not just puffers (cars left with the keys in the ignition to warm up on a cold day) -- I've heard of plenty of locked recent-year cars stolen from private locked garages with no keys at all. I believe car theft is up at least 500% from pre-covid.
And that's to say nothing of the opportunistic catalytic converter thefts if you park your car on the street overnight.
Most of these thefts utilize "relay attacks" that simulate the key being in close proximity to the car, using directional antennas to interrogate the key that's sitting in the house and then relay it back to the car. The solution is to disable the proximity feature, but that's inconvenient.
Where I live I'd guess the rate is 100 bikes stolen for every car.
With a bike you don't expect it to be there after locking it in the street for more than 15 minutes. I don't know anybody personally whose car was stolen.
FWIW, my local bike shop has a pile of electric-assist commuter/townie bikes ready for riders. Supply chain for bikes is definitely broken right now, but they're out there - you just have to look and wait and look some more.
"The price index for used vehicles rose 0.2% in July, after having risen at least 7.3% in each of the previous three months. The category was one of the few, along with hotel rooms and airfares, that drove recent inflation, the economist Paul Krugman pointed out on Twitter. “Combined, these three sectors account for…more than 1/2 [half] of inflation over the past three months,” Krugman wrote. In May, in fact, a full third of the overall price rise was due to the surge in used car prices."
Regardless of prior academic work, Krugman's Twitter and NYT opinions are blatantly partisan rather than scientific. Whatever he says, do the opposite.
https://contrakrugman.com/
(edit: slightly more specific and less ad-hominem)
The price of a new car is whatever the dealer is willing to let it go for. MSRP is a starting point, not the final price, which can be literally anything.
Yeah, I normally buy used, and this time I just bought new (technically I leased new, but it's the first time I'm leasing a car in my entire life), because it just didn't make any sense to me to buy a used car for almost the same price as a new car.
While possible, look at lumber prices now[1] in the context of articles from April saying that the high prices would persist.
Economists who study these phenomena tend to be a better guide than reporting that is in the middle of reacting to dramatic signals like shortages and fast price changes.
> This so-called “transitory inflation” is really starting to seem like it will parlay into full blown inflation.
A lot of the people screaming about inflation were doing so using the argument that there's too much spending and the "excess" money supply will cause the US to turn into Zimbabwe (Fed printers go brrrrrr): demand-pull inflation.
The price fluctuations caused pandemic-related supply issues (cost-push inflation) don't have much to do with money supply and stimulus packages.
If things get too hot, it's easy enough for interest rates to be pulled up, but given un/employment isn't at pre-pandemic levels, policy makers may let things ride for a while.
My argument doesn’t hinge on the excess spending. Rather, the increase of costs due to a labor shortage, chip shortage, construction materials shortage, etc. is having a compounding effect across the whole economy.
Inflation is just when prices go up, for whatever reason. Increased supply of money can cause it (and does more often than not), but decreased supply can also do that as it moves the price equilibrium. Unfortunately we have a bit of both at the moment, money supply shot up and lots of supply chains slowed down.
Inflation has to do with purchasing power of a dollar decreasing. I would argue that inflation is something measured at the scale of the entire economy, and you can't say much about inflation looking at a single commodity, or even a single sector.
It's is often talked about that way: Wikipedia at least defines it as a general price increase. And that still gives you many of the same effects as a money-supplu-triggered inflation. Many annuities are worth less. The dollars in a savings account are worth less. The minimum wage becames worth less...
No, inflation has to do with the price of goods and services. Inflation is defined as "a general increase in prices and fall in the purchasing value of money".
Inflation can be caused by many things: reduced supply, increased demand, expectation of future price increases, degradation in the quality/desirability of alternative products (eg bond yields), and, yes, an increase in the amount of dollars chasing an asset class/product/service.
Re: your original question, to be a bit pedantic, the supply of money on its own cannot cause inflation in consumer goods except via extremely odd channels (e.g., inflation expectations). A trillion dollars sitting in a bank account has approximately no effect on prices. Like a bullet in a chamber, money at rest has no effect on consumers' experience of inflation until it's propelled forward.
But it's important not to conflate causes with definitions. Also, attributing causes of inflation to particular instances of inflation is often extremely and inherently political. The inflation we've seen in consumer goods is a complex phenomenon with many disparate causes. Beware of anyone selling you a "just-so" story for the cause of inflation in a few dozen disconnected goods and services.
Especially if that story aligns perfectly with their ideology/product/investment/political campaign.
And even more especially if they start the story by conflating one possible cause of inflation with the very definition of the thing.
There is really three types of inflation:
1. Demand driving higher prices
2. Increased cost driving higher prices
3. Expectation of inflation driving higher prices and this inflation itself
If the supply of these chips causes a loss in supply of in demand items, like cars, then it will cause an increase in the price of cars.
The thoughts are that this is temporary, until the components that are in low supply can catch up and meet the demand.
But if the lack of supply lasts for too long then people become used to the increase price and manufacturers can just keep the price there at the inflated price. Now it's permanent inflation. Or that can happen if the supply doesn't keep up with the demand.
Kind of both? If I were to come up with a formula, I'd say 'prices = GDP / SupplyOfGoods', where GDP is just 'MoneySupply * MoneyVelocity'.
If supply goes down, prices go up. If money supply grows, prices go up. If money velocity (number of times money changes hands in a given period) goes down, prices go down, etc.
(It's worth noting that in 2020 when money supply exploded, money velocity fell by a lot, which is why GDP fell, and why there wasn't that much inflation)
People think of inflation like they think of the oceans. If the ice caps melt and water melts in, the shore lines from New York to Tokyo rise slightly. If you track this rise, that's inflation. That's not how it works, and it's not what the CPI tracks. Inflation is much more analogous to inland water, you know, lakes and rivers.
If you give the bottom 80% of the income distribution more money, they will spend it right away like a river. If you give the 81-90%, portion of it will be saved in their lake(say, a 401k) and they will spend some of it. And if you give the top 10% more money, they save all of it in their reservoir.
The way that we have been introducing new money into the system is not by melting ice in the middle of the ocean. We also haven't been raining all over. The key way that new money has been introduced over the past 50 years is by lowering the interest rate. When you lower the interest rate, what happens is that people refinance, and suddenly they can pay less, but quickly realize, oh, I can also borrow more, so they do.
I'll show you a few numbers, which I got by going to the zillow housing affordability page with default settings. I only modified the interest rate, all other values stay the same.
Year | Average Interest Rate 30 Year Fixed | Home you can Afford
1981 | 18.39 | $124,797
1991 | 9.00 | $200,862
2010 | 6.26 | $244,531
2020 | 2.67 | $328,569
And so what we see people and REITs and companies doing is taking out larger and larger loans, and putting those dollars into assets. Companies take out a bond and buy back their own stock. And why wouldn't they, it's profitable because the environment makes it so. And that money flows throughout the system. We can track the inflow of all of this money by looking at say.. the M2. This seems to be the crux of your point, if the amount of money in the M2 has gone up by 40x since 1971, why is inflation not out of control?
The CPI is a measure for inflation that does not track the oceans water level. The M2 tracks that, and as you can see the M2 is out of control. The CPI doesn't track stock purchases. If the CPI were to track stocks weighted at 1971 levels, inflation WOULD be out of control. The CPI tracks, specifically, an average of tangible items that the bottom 80% spends their money on. Therefore the inflation number is based on the height of certain rivers. Now that's an important figure to keep in mind, after all if you get inflation in that bracket and income isn't rising, you quickly run into a revolution. And so that's what the FED has found, if you track the CPI you get the perfect amount of heating to boil the frog without them noticing.
But when you introduce money into the system by lowering interest rates, you are in effect giving the money in proportion to the assets already owned. Someone bought that home in 1981, and someone with the same exact income would bid 328k for it today. You basically tripled(and it was a leveraged sale, so 15x!) that home owners asset, without any need to compare anything else, like actual income rises, or for instance SF has moved upmarket which would also effect prices. And so if you don't have much assets, it's a desert. If you do, it's a rain forest. And because the wealthy already have all that they want, demand for those items that the bottom 80% spend their money on doesn't change. So the supply and demand of those items don't change. So the CPI value stays the same. But money was introduced. If you take a look at the velocity of the M2, the M2V, you can see this take place. The wealthy get the gains of the new M2 dollars, and store it away. The more dollars created, the lower the velocity.
The lower the velocity, the lower inflation. But that rain is being stored in the reservoirs. If inflation causes stored wealth to lose value it's like a dam bursts and the wealthy start to spend and not save their money, it starts as a trickle and ends in a tsunami.
You are quite right. Except that you are implying other product will decrease in price while that one increases. Vehicles is a rather large market and an element of supply chain costs, chips are used across so many industries. I would rather expect the majority of product to see an increase in price. We can talk technical terms but my comment was a reflection of the markets at large.
Many countries have a funny concept of strategic industries.
In mine, dairy is a strategic industry that is coddled by government so that we can have a local source. But every country thinks that so there’s foes and allies that can supply us UHT or powder milk on a moment’s notice. And if our milk supply disappeared tomorrow, everyone over 1y could substitute with 10000000 different things for nutrition.
Cars are another. Every country props up its auto industry, so why worry about a domestic supply?
Meanwhile, there are critical components, pharma ingredients or other inputs built in 1 factory in a country we could likely end up in a big dispute with.
Just goes to show that industry protection has nothing to do with risk/dependence on that product, and everything to do with picking and choosing which industries are important voting bases.
Building it is one thing. Making it operational without importing talent and running it profitably is another. Taiwan has some of the best fab engineers who work at US minimum wage salaries. Of course you can pull them away with higher pay like China is doing, but that means profitability will likely go for a toss.
The risk model is different. The cost of setting up an gorgeous tech company office in pre-Covid San Francisco is trivial compared to setting up even poor-quality fab. Not that we (the US) should shy away from doing it - the Silicon Valley is called that because semiconductors are made out of silicon, but SV is also full of Superfund sites (for many reasons, but IC manufacturing isn't a light industrial process, and is ridiculously capital intensive. A few million dollars, and a few months, and that social media company will have an MVP and started proving traction in their chosen niche. (It'll take closer to a decade to actually get somewhere with it eg tiktok, but MVP can be demoed to investors far sooner.) A few years, and closer to a billion dollars, and you might have broken ground on the fab.
We do pay them "enough." They do the job for that price. Why are they not payed more? Consumers care more about price, and capitalism cares more about the bottom line, than the ethical treatment of workers.
I agree with your points, but poaching talent is just fine in my book. And profitability should be considered, but not required. Most national defense programs are ``profitable'' in that they are paid by us. Chips are a cheap strategic win in the scope of things. TSMC's entire operating budget is a miniscule line item next to the cost of threatening supply chain to downstream industries, or strategic loss from TSMC being nationalized by China (or ... going to war to defend against that)
Monthly salary for a TSMC fab engineer is about NTD$48,000/month [1]; I saw another source on the web that listed NTD$612K/year, which is consistent. The exchange rate is 1 USD ~= 28 NTD, so that about USD$1700/month or about USD$10.50/hour, which is pretty close to what McDonald's pays these days.
Prices in many foreign countries are wonky though, because of different cultural & economic systems. You can have a good lunch out (the equivalent of fast-casual; most eateries are like that) in Taiwan for about USD$2-4, and because the expectation is that you live with your parents until you get married, housing expenses are minimal. There's also a big oversupply of 20-30something labor, because the older engineers who built the company (and get paid significantly more) aren't retiring and so those skilled jobs aren't opening up. That's behind both the low prices for food (many young Taiwanese open small restaurants) and for entry-level fab engineer jobs.
> Prices in many foreign countries are wonky though, because of different cultural & economic systems.
You should just adjust for PPP. The world bank estimates taiwan's GDP (nominal) to be 759M, but adjusted for PPP it's 1,403B. If we do the same adjustment for wages, we get $3165 per month, or $18.19/hr.
Even adjusting for PPP is complex though, because different goods have different cost adjustments. Actually buying a condo in Taiwan isn't cheap - I think my in-laws said it was around USD$500K for a 3BR/2BA in one of the Taipei exurbs, and can go up past $1M for luxury condos near a city center. That's close to Bay Area prices on McDonalds wages. A lot of Taiwanese youth are pretty much priced out of many markers of adulthood (not unlike many American Millennials), and can't do much other than eat, work, and play videogames. To have a house of their own and a job with the potential for career advancement, they basically need to wait for their parents to die. That's not really captured in PPP numbers, the same way that rampant asset inflation hasn't been captured in the American CPI.
+1 to these Taipei real estate price estimates. Note that TSMC is headquartered in Hsinchu County, and I think real estate is much cheaper there (please fact check me on this though).
source: Parents are from Taiwan, and I have relatives in Taiwan who tell me similar price estimates.
McDonald’s is also forcing noncompetes on new hires. Nobody should work for them
Edit: my source (potus) was mistaken apparently. A better source is below and involves non poaching and different restaurants (not McDonald’s as far as I can tell)
> About 80 percent of fast-food workers are constricted by no-poaching clauses, according to Healey's office. The other fast-food chains targeted by the states' investigation are Arby's, Five Guys, Little Caesars and Popeyes Louisiana Kitchen.
"The median employee salary at Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, reached NT$1.81 million (US$64,874) in 2020, up from NT$1.63 million a year earlier."
With respect, we don’t have that many fab engineers any more. At least, not of that quality. And most of the ones we do have are already locked up by other employers, like Intel, IBM, and the other companies that still have some fabs here in the US.
Sure, we can do small scale cutting edge prototype fabs, but the few production fabs we have here are not TSMC quality (go ask Intel), and they are already fully allocated. Many of those might not exist here in the country at all, if it weren’t for the requirements from the US military and certain other classified customers to have certain types of chips made here domestically.
We used to have a lot more fab engineers here in the US, but we outsourced those jobs and sent them overseas. And the people who used to do that work have moved on to other careers, or retired.
And the reason why Silicon Valley has so many EPA disaster area cleanup sites is because of the fabs(and related businesses) that used to be endemic in that part of the country. Fabs aren’t clean businesses to run. You’re going to have to find a place where you can run those dirty kinds of businesses, and that’s either going to be extraordinarily expensive, or even impossible, due to legal restrictions on the use of toxic chemicals, etc….
There’s a reason why those fabs are overseas. And all those reasons are why it’s going to be extraordinarily hard for us to pull that work back. There’s a reason why Steve Jobs and Tim Cook have both said “those jobs aren’t coming back”.
Government can't make a website, let alone a chip fab. Talk to Intel and ask them why we've fallen behind. Do any VCs want to fund a direct Intel competitor? I doubt it.
Making chips seems to be quite a bit more complicated than making and launching rockets, I don't think even Elon Musk could do it.
Just subsidize it. I'm not asking for the Fab Czar, I'm asking for the NSF, DARPA, and national subsidies for it. Accelerated permitting, tax breaks, tarif support, state vs national investments, accelerated green cards for key personnel, and price breaks for a "buy US Chips" initiative for the first 5 years until things get serious and exports ramp up. I'm spitballing over morning coffee, but come on, this seems obvious.
Exports won't offset operating costs here in the USA, but perhaps we could apply some ingenuity to that through national research investments and the ensuing startup ecology. The ancillary benefits of funding research and small business infrastructure around the big fabs would be huge.
EUV LLC was already heavily funded by DARPA in the 90s and is why we are able to have export restrictions on ASML machines used by TSMC for the latest EUV nodes etc.
And people seem to be forgetting that ASML is a Dutch company. It’s the worlds leading producer of the chip lithography equipment, and the other quality companies in this space are in Japan.
We are lucky to have a Dem in office so we at least get something vs just spinning our wheels. Who knows, the next republican might just tank this strategy in the long run anyway.
>Government can't make a website, let alone a chip fab.
Tbf, many (most?) government websites are built and maintained by private companies. Remember the ACA website debacle a few years back? The government was mad at the contractor for building a shoddy product. They claimed they would take action against them but I’m not sure anything happened. If the government should be held to task on anything it should be an inability to write good contracts or hold companies feet to the fire. I’ve heard civil servants are unwilling to to the latter because they don’t want to hurt businesses or are afraid of legal protests.
Anecdotal, I know, but the saddest interview I’ve ever done was a state government web developer. I was writing a js on the whiteboard, setting up a problem that started something like
var a = 1;
a = 2;
Before I got any further they blurted out “that’s false! The second line is false” and this was someone who had been writing production code for the government for the last five years.
I honestly just felt really bad for them, more than anything.
I wonder how much of this is due to being forced to select lowest bid contractors.
I’ve seen some orgs rely on rely bad programmers because they were relatively cheap. Programmers who make changes on the fly in meetings to live production systems or say their test plan is to push it to production and just wait for customers to send in work tickets when they encounter a bug. Or blatantly lie about feasibility because they would prefer to work in an antiquated framework rather than learn a new one.
The govt owns some responsibility for lack of technical oversight but I can’t help but think a lot of it is due to business contracting incentives.
The US government manufactures a lot of classified chips in house. It’s unclear what their exact capabilities are, but looking at funding they could in theory be ahead of the industry.
America does fab. However not newest nodes at high capacity. It just doesn't take building an identical factory and hiring away engineers. There is a complete supply chain of specialist companies which produce or fix the part the part that goes into a machine that that ... . Not mentioning that those construction costs are at economies of scale of building factories.
Such a thing can't be build in the US as every state needs a piece of the pie. An US run copy will be more expensive even when you ignore wages. Extra spare capacity for emergencies is not sound either.
Yeah, people underestimate the complexity of chip production. It is not one fab that you need to build, it is an entire ecosystem around it.
EU has lately been thinking about localizing chip production here, but they seem to be stuck in the same fallacy: we need a huge, gleaming fab on our soil. No, that is just the tip of the iceberg, unfortunately.
We're doing it but obviously Taiwan isn't going to give up their smallest die processes (only older processes) since it keeps the US at least unofficially allied with them.
This is a huge hurdle. There is actually some chip/silicon fab sites that never left (only scaled down considerably from their peak). A family member has worked at one for many years as an engineer/manager. When he tells me stories about the insane complexity of their process engineering it really hits home. Impurities at the nanometer scale can ruin 10 million dollar batches of silicon. Nasty chemicals are piped everywhere at the plant - the kind that explode if touching oxygen in the atmosphere or acids that dissolve bone before they noticeably affect your skin.
You vastly underestimate the institutional knowledge necessary to operate state of the art fabs. Intel has been at the forefront of the field for decades, and even they are stumbling vs the current challenges. TSMC was founded over 3 decades ago. That it was founded by a TI employee says nothing about the situation today.
The US is subsidizing a TSMC plant here, which should help the situation, as it'll give us access to their engineers and cross pollination. But it's still tiny compared to the need if we want to move the majority of our chip imports to domestic.
I agree that I'm underestimating the startup cost. That's inevitable, I think. I can only counter by saying that I think we're also underestimating the benefits of being self-sustaining at the scale of TSMC, especially with the changing political landscape re: China.
Part of the reason fabs are spread out is capitalism: if you manufacture the part in the country, you don't pay import taxes (e.g., Intel's Ireland fab debacle).
Another part is lax environmental laws. Hillsboro Oregon is embroiled in a suit with Intel where Intel dumped 100x the fluorine into the air that they claimed when D1X was first pitched. Don't need to worry about that stuff in Asia (for now).
Also, lead time. The x-ray litho machines take years to build and test. There are only two companies that make Intel's testers, and the lead time is years. So a "quick fix" isn't possible.
Speaking opinion: in the long term, it is mostly rich people trying to get richer that caused this. If greedy CEOs and shareholders would just be humans for once and think about the future we wouldn't have this trainwreck. That ain't ever gonna happen.
Because Gordon Moore, Andy Grove and Robert Noyce wanted to improve integrated circuits to do amazing things with technology. Not rape the planet to become trillionaires. You realize there are other motivations in the world for doing things, other than just money, right? Perhaps you don't based on your reply.
Yes, but from what I understand, it won't be the most advanced plant making the smallest feature sizes, so it's not like Apple is going to be utilizing that plant (maybe for ancillary chips, but not main processor). Understandably, TSMC keeps a tight reign on their top-tier production methods, which is their reason for being #1.
It's also 3 years away from opening in AZ (2024). Then they have to fine tune the equipment and processes over x runs. New plants tend to have low yields until those processes are smoothed out and perfected. You don't just set up a plant and start churning out chips with 98% success rate at 5nm once the factory is built. It probably takes 5-6 years from construction start to churning out quality chips in numbers that are actually profitable.
And the machines they’re going to be running take years to build. And they have to be built custom for each site. Not just for each site, but also each location within the site. Just moving a machine a couple of feet can cause massive delays as they have to effectively rebuild the machine for the new location.
ASML has engineers who go out and spend months or a year or more, just taking various measurements of the location inside the building at the site where the machine will be operating. Then those engineers go back to Eindhoven to oversee the building of that machine from the ground up, and run through proving cycles. Then the whole thing has to be taken apart and shipped and then rebuilt at the site. And then there are months afterwards as the team does further work and testing before they can finally use that machine for production purposes.
The Saturn V rocket was much easier to build and move. Nothing the rocket industry has can compare to the difficulty of building and moving these machines.
Disclaimer: I worked as a consultant at ASML for several months, helping them to rebuild their Unix infrastructure systems that they used to support the engineers who did all that design and build work.
Seems like long term the human race is going to lose this ability if something serious is not done to reduce the complexity of building these things. This pandemic has shown that everything is super fragile and with Climate Change on the horizon I cannot believe they decided to build this damn thing in Arizona of all places. Maybe the collapse people were right and we should be working on CollapseOS
What makes Arizona a bad place vs other places it might go to? No place will be spared the effects of climate change. Water use is a concern, but it sounds like they plan to recycle nearly all of it.
Arizona is already nearing the edge for what constitutes livable. If something isn't done to mitigate Climate Change soon, I can start to see land being abandoned. This is such a critical factory and a disruption will have massive ramifications. They probably built it there due to tax breaks that may not matter anymore in the future if climate change wrecks havoc.
They are indeed, in Arizona. First they are going to have employees train on-site in Taiwan (will get housing for themselves and their families for duration).
I thought similarly - this is true if we can have lossless knowledge transfer. I imagine we would have to put what is learned into practice before translating it into distributed knowledge for a US fab workforce.
The US does produce ~10% of the global chip supply today, and much of the equipment used in the world's factories, and a very significant portion of the software needed, is made in the U.S.A. This is an economic issue. Not a knowledge gap.
in a few years there will be 10x number of factories. Covid just sped things up. It's too critical for army and other industries. Food and army cannot be outsourced.
Politicians like MTG and Boebert are part of the system just to cheapen it. The crazier they are, the more off-tilt they are, the better the strategy works, the more it weakens the average Americans faith in the system. This strategy started with Trump, but it's started permeating every level of politics. The more wild they act, the more they can insist that the other side is being just as crazy.
I agree that a president speaking to goals like that would be incredible. But he didn't have almost half the country supporting complete fantastical claims and a decent fraction trying to overturn elections.
But look what he did against racism vs Johnson (not that much compared to J.), and they both still pushed the Vietnam war. Kennedy had to work around the edges on entrenched racism to maintain his Democratic majority with southern votes. At least the parties are more honest about their proclivities today.
Nerva and Orion were both cancelled, it's not like they just delivered everything. If Joe Biden said tomorrow "I'm going to wave a magic wand and we will have non-intel x nm fabs tomorrow" then loads of people would be moaning about big gov. or the cost etc.
Highly visible industries tend to get a disproportionate number of subsidies, because the population can relate to them, and politicians aren't that clever either. Film and television are good examples, and fishing tends to get a lot of attention too.
I'm not sure that the population can relate to building a semiconductor ecosystem in the USA -- when a state gives incentives to bring movie production there, people think "Well look at all of those jobs and movies give our state great exposure", but when the government wants to spend billions helping to build a next-gen fab plant here, then it's like "wait, I paid thousands of dollars for my phone and computer, why are we paying them to build plants here, don't we pay them enough!?"
You may say "But semiconductors are used in far more devices than phones and computers", but I'm not sure the average person realizes that. Well maybe they are now when they can't buy the car they want because it's delayed due to semiconductor availability.
People understand just fine. They understand that pretty much everything they own these days has a computer chip inside it.
Using a simple example people understand they can't get consumer electronics like Xboxs, Playstations, and Switches because of the electronics shortage. People understand there is a car part shortage due to electronics. These aren't high information people talking to me about this. It's understood there's a chip shortage right now by the general population.
People are fine with and nobody really argues that America should support a steel industry. Frame the argument the same way and most people would be ok with supporting a technology infrastructure local to America.
The other issue that hasn't been touched on is that a chip subsidy will probably only benefit 1 or 2 states, where as agriculture and other commodity level subsidies get spread out so there's less political will to make it happen. (along with a zero sum attitude in politics that if X state is getting money it means my state is not getting that money)
It's actually a pretty critical geopolitical issue, sense there's a real chance that China makes a move on Taiwan soon (soon being within the next 10 years), which will result in either the destruction of alot of the chip infrastructure or China with global control over chip infrastructure.
I'm kinda surprised countries like Japan and Korea aren't making moves to address this by starting their own fabs. (Maybe there are?)
Samsung of South Korea already has multiple leading-edge fabs in South Korea and Austin, Texas. Remember when Tim Apple defended their Chinese outsourcing practices, claiming that the engine of the iPhones were made in America in a rare CBS interview years ago? Tim Apple switched to TSMC in Taiwan shortly after that. The company also announced a plan to spend $110+B in capex over next 10 years to expand their busines.
Japan really has no presence in this business. Japanese automotive chip makers like Renesas had fabbed chips in-house, but decided to outsource everything to TSMC back in 2018. In fact, most automotive chip makers, such as Infineon and NXP also use TSMC -- the company has something like 70% of the market share.
Now, the real issue here is that the automotive chip business is fairly low-tech and low-margin business. TSMC has been around and has been making MCUs used in cars for a long time, but it seems others are less willing to jump in b/c it's going to take years to recoup their investment.
Note that Samsung is frequently considered to be the second best chip fabrication company in the world, behind TSMC. That’s part of why Samsung is the single biggest supplier of technology to Apple.
Canon is the other major vendor of chip lithography equipment, but I don’t know where their EUV processes are, or what the major chip manufacturing companies are in Japan that they would be sourcing for.
Supply and demand shocks will work themselves out fairly quickly if just left to market forces without government involvement. But a large section of the US population is under the delusion that if there’s a problem, only government can fix it.
One part of the legislation, the CHIPS Act, allocates $52 billion to subsidize the construction of new chip factories in the United States. Officials believe it could result in seven to 10 new U.S. factories. Although a national security case can be made for it, too much subsidy can do more harm than good.
> Every country props up its auto industry, so why worry about a domestic supply?
War. In the event a war breaks out, a running auto plant can be re-tooled relatively rapidly into a light and heavy armor plant. It's not even a question of whether allies could supply tanks and troop transports; it's about having domestic capacity to make them because enemies could execute blockades and disrupt allied resource supply.
That's the same reason why food security is so high up on domestic priorities also. If a country is dependant on other nations for food, then in case of war you just need to target their logistics chain to starve them into submission. All those subsidies make sense, if you view the nation-state as primarily concerned with its own survival.
As a fellow Canadian (living in the UK currently), we may like to think of ourselves as an independent and sovereign nation, but we are very much tied to the hip with the US in terms of defence. Our food security strategy hence is also aligned as such.
Except for getting subcomponents and today ics are the crucial thing. What do you bomb first, the ic manufacturing of the other side? Or take it away by force (like Taiwan's).
I am skeptical that a modern automobile factory could be converted to make tanks or airplanes at any kind of scale using current designs.
The stuff is so specialized and automated now that even the workers probably wouldn't have much translatable knowledge as WW2 days. You would i guess have a supply of welders to lean on at least that would ramp up faster than someone fresh.
But I doubt a factory that makes modern cars can handle making M1 Abrams without so much additional tooling and extra equipment that you are halfway to making a new factory anyways. (they could probably handle making light vehicles like cars and bikes at least)
Maybe if we had mass production style designs that were built purpose first to get cranked out. But we don't, and there isn't profit in that for the Military Industrial Complex.
One scary fact that I learned is that, in war games between China and the USA, China almost always wins due to superior production capacity. Those $100B American battle carriers and $40MM advanced fighter jets can be taken out by $50,000 rockets/missiles produced at a rate of hundreds or thousands per day.
The US loses many war-games against China in the short term as China has local numerical superiority of weapons. US armed forces are spread all around the world while almost all of the PLA is near mainland China. In the opening salvos of a Taiwan conflict China would flatten US bases in the region which would be devastating.
But long term China is effectively an Island. Its geography means that it imports nearly everything it needs by Sea. It imports 10 Million barrels of oil a day. It is not food secure. It imports nearly all of the raw materials it needs. While the PLAN could dominate their near shore, they cannot escort super tankers from the Middle East all the way back to China. The USN has had a carrier strike group in the Persian Gulf for decades.
The issue is that China needs energy and other natural resources to sustain production which the US and allies can effectively blockade. It always puzzles me why China is so antagonistic with its neighbours. Indochina is very difficult to invade, and the whole South China Seas situation means that China has no blue ocean access into the Pacific. In a global war, the only reliable lifeline into China is through Russia.
That's why the Chinese are so keen on taking over Taiwan as it will give them that access. The core theory that the PLA repeats is that they could overwhelm US assets in the region and quickly crush Taiwan in hopes of forcing the US to agree to a cease fire and peace deal.
> It always puzzles me why China is so antagonistic with its neighbours.
> The issue is that China needs energy and other natural resources to sustain production which the US and allies can effectively blockade.
You just answered your own question.
They are so hostile, and aggressive exactly because of that immense insecurity, and fear.
It's the mental model you pickup growing in any red country: you never acknowledge your weaknesses, lest you want them being instantaneously exploited.
On other hand, you feign a polar opposite. It's everywhere in China:
— Far from rich people in small towns buying fake Ferraris
— Dumb companies hiring fake "big name foreign executives" to mumbo jumbo their plans to investors
— "Advance to retreat" tactic
— Chinese businessmen hiring a service of "fake thugs" and tatooing themselves to appear "tough mafia men" to scare off actual mafias
It's definitely not true today in 2010 because auto plants in 2021 cannot be 're-tooled' to make tanks.
Also, US China conflict depends on entirely 'where' and 'over what' and what each nation is holding up it's sleeve.
China does not have $50K rockets that it can use to down 'reasonably stealthy fighters' and as we have seen before, tactics combined with good tech gives overwhelming odds. For example, if (big 'if' but entirely plausible) the US can maintain air superiority in a particular region ... then it will basically maul whatever is before it. As just one example.
China is building 100 subs that are a pretty big threat to any navy ... but we also don't know about advanced US tech that may render them completely moot.
If there is no huge leverage by one side, it happens on land, and over a long time ... the then 'home team' will win.
Apparently (and I don’t really have hard sources for this since it’s embarrassing for NATO), in big naval exercises it’s not unusual for run of the mill diesel submarines to penetrate the defensive ring around a US carrier group.
Stealth is a lot easier in water than it is in the air.
Notice this resembles somewhat (in reverse) the WW2 situation with high quality German tanks and Japanese Zeros etc and the us making many more tanks and planes compared to the Germans and Japanese. But we are on the other side of that now.
That doesn't support your core thesis that the US will lose a protracted war and that mass producing missiles is going to actually led to planes being destroyed. That's not how that works.
> US has enough nuclear munitions to outright defeat 1 equal superpower in a first strike scenario.
I wouldn't call half the population of the US dying in 30 minutes, and most of the other half over the next 30 days to be much of a 'victory', and I don't want the DoD to even consider employing anyone who would.
I'm sure the manufacture of tomahawks is pretty much on stand-by for the order to increase production. Civic pride and what not. Totally has nothing to do with the stock price.
So the opening move would be to invade a non-hostile country to ensure you have all of the chips! Then once that is secure, you can then target the country you actually want to have hostilities with. I can see no flaws with this plan. Execute!
So, apparently the best opening salvo is to take out USA comms satellites and that essentially cripples American offensive capabilities. Modern tomahawks are heavily reliant on comms networks to hit long-range ground targets.
Plus, any destroyer launching these at targets deep in Chinese territory will be within range of Chinese missiles. And, as we saw in Syria, Russian air defense systems are pretty effective against Tomahawks, and we should expect Chinese systems to be at least as effective.
>So, apparently the best opening salvo is to take out USA comms satellites and that essentially cripples American offensive capabilities. Modern tomahawks are heavily reliant on comms networks to hit long-range ground targets.
No they aren't. They were designed with the assumption that GPS wouldn't be available and instead will rely on terrain tracking.
>Plus, any destroyer launching these at targets deep in Chinese territory will be within range of Chinese missiles. And, as we saw in Syria, Russian air defense systems are pretty effective against Tomahawks, and we should expect Chinese systems to be at least as effective.
What are you talking about? We had satellite imagery with holes in the ground that disproved the Russian claims that they shot down most of it.
I can't decide if some of these scaremongering stories are from the military industrial complex to convince more funding into new things, or just anti-propaganda to give pause to rushing into new conflicts.
It's neither. The US is in an incredibly bad position right now because of three decades of under investment. After closing too many public yards after the cold war now the USN is barely able to keep up with regular maintenance during peace time of it's vessel's, let alone during a war. The average age of most American vessels is greater than that of their sailors. All while they're asked to face down the PLAN which now outnumbers them and is newer.
Great question. It's still doctrinally true (i.e. governments believe it is true; it was one of the reasons cited for the US federal government buying key stake in domestic auto manufacturers instead of letting them go bankrupt during the real estate market crash), but whether light and heavy armor is actually of military worth in an era of drones and air power is a question I don't have the military training or knowledge to answer.
I'm unsure whether you can still retool an automotive factory to produce war materiel. During WWII Ford automotive plants produced aircraft, but back then the construction techniques needed to build a bomber weren't all together different from a car (think larger engines and chassis).
> whether light and heavy armor is actually of military worth in an era of drones and air power is a question I don't have the military training or knowledge to answer.
On this point, it obviously depends on what kind of war we're fighting. The British used unarmoured and open top Land Rovers with 50cals mounted on the rear for the first few years in Afghanistan until the government got its act together (they looked cool, but were IED death traps). There's a similar story with the Humvee.
Nonetheless, civilian style vehicles had their use.
Yes, I remember an article on HN a while back that referenced a DoD report stating a dwindling manufacturing base as a major national security risk. Related, they track a “manufacturing readiness” metric
this. If you look at all the strategic industry subsidies, you will see this common denominator. Corn in the US is stupidly subsidized, so much corn that it ends up in car tanks. But guess who will not have a famine even if the worst war + disasters strike?
Car factories might not make good tanks, but the mechanical engineers and tooling knowledge is invaluable and can't be scaled up overnight.
Same with solar panels, there's a reason both Obama and Trump imposed protective tariffs. One of the few areas both parties agree to. PV panels are the future of energy, so you need to have domestic factories no matter the cost.
> PV panels are the future of energy, so you need to have domestic factories no matter the cost.
Another benefit of domestic factories is domestic innovation. It's much harder for an engineer coming out of university and going through their career working at an office computer terminal to ever make a breakthrough innovation, if they can't step inside the factory to see how things are really done.
If that factory is down the street, it's much easier to do an apprenticeship, get a tour, or chat with the manager about their pain points. If it's in another country, you'll have to schedule a formal visit and you'll probably need to be a very important customer for that to happen.
Grad students coming out of a research lab would tend to focus on getting an extra 0.2% cell efficiency, but it's more likely that the innovation that makes PV competitive is something like reducing the scrap rate, or figuring out how to run cells through the QC machines more quickly.
Yup! In 2008 I was in my first job, working for a defense contractor, and my boss seriously could not wrap his head around the idea of me voting for Obama. In his mind that should have gone completely against my own self-interest.
But he also saw the job as a lifetime career, which is partly generational and partly just a different mindset because a lot (most?) of the engineers there were former military.
I will say, though, that his mindset generally made for a very friendly and nurturing team experience.
Is there something uniquely strategic about property owners in Southern Pines?? If anything, based on my knowledge, military contractors would be the strategic play down there (just as in VA/MD).
Camp Mackall, Fort Bragg, the complex around those two, and an officer corps/civilian contractor base that enjoys golf.
I was just giving it as an example of how whole tertiary industries that aren't directly part of the military-industrial complex will none-the-less vote (R) like their lifestyle depends on it, and for the same reason as contractors.
Indeed. The goal is to not have the government pick industries. Politicizing who gets aid to any greater degree would only serve to further subdue innovation.
Are you in Canada by chance? I have fond childhood memories of smuggling cheese across the border from the US because the dairy protectionism has resulted in prices that are 3x higher. We used to do that with electronics too, but Canada has no electronics industry so it's weird why it was so much more expensive. The gap has decreased in recent years.
It's definitely worth keeping a skeptical eye on non-market interventions, but there are a ton of good reasons for it.
For auto - companies do not exist in isolation. They're a huge pillar for other things, especially the local economy.
If you were the CEO of a 'region' that actually owned all of the businesses, this would show up in your balance sheet: it would be perfectly acceptable to lose money in your auto-making 'division' if it meant that the 'education division', 'healthcare division', 'civic division' were made profitable.
Japan also makes a ton of money exporting it's cars so it's valuable.
Finance, telecoms, farming and entertainment all have different reasons for being supported but the impetus in most cases is rational.
If anything we probably need more high end fabs and this whole 'single source with 24/7 operations' is maybe not worth it, we might just have to be paying a little more for our chips.
Yea this is very interesting. I suspect another side to this though is I don't know that one country can easily or safely not participate in this chosen industry support.
Especially in capital intensive industries, say cars, all of the competing countries are propping up or bailing out their auto industries. So even if companies should theoretically die and get replaced, there is a structural disadvantage as the competition in other countries has an insurance policy against companies failing (bailout / subsidy / tariffs / strategic protection / etc).
Indeed, there seems to be a difference worth noting between "industries that currently employ a large number of the population with little transfer of utility to other industry" and "objectively basic needs for a society".
I figure there are also different definitions of strategic depending on the size and capability of an economy. The US is large and geographically fortunate enough that it theoretically "could" be almost entirely self-sustaining if it set its mind to it. Fuel, semiconductors, transport, lumber, food, guns.
> Indeed, there seems to be a difference worth noting between "industries that currently employ a large number of the population with little transfer of utility to other industry" and "objectively basic needs for a society".
Did you consider that it's because people need an income to survive? Employment is objectively a basic need for anyone who doesn't own sufficient capital being that they have nothing else to sell but their labor.
On that matter, I think (just a not-so-well-informed opinion but still plausible) most countries should urgently protect their software development industry and dramatically reduce taxes on those companies. Because the day US/China automated-production AIs will get to its prime, nothing produced in your county will have any value whatsoever beside land. Ferrari and Rayban? Near-zero market value tomorrow.
"Because the day US/China automated-production AIs will get to its prime"
I think this time is quite a bit far off. But eventually will have sourcing price of just the raw materials. That said and regarding your next point -
"Ferrari and Rayban? Near-zero market value tomorrow."
On this I disagree strongly. Current trend is that IP becomes constantly more important. So that while manufacturing costs for said items may tumble, IP laws likely protect the sale of items branded as such. And the price difference does not likely result in cheaper prices, but in a bigger revenues.
How the essential farma became nearly 100% reliant on foreign manufacturers is I think the most exemplary case of this nonsense.
I read some year ago that there were laws in US which at least somehow discouraged the pharma from shipping manufacturing abroad, and it was the big pharma itself which lobbied these laws out.
This is how China held US at gunpoint in the early days of COVID — "Stay put, or we pull 90%+ of your antibiotics supply"
Come on, we all know this problem and we all know the solution. It's probably red-circuits that we are talking about here. We've all been there: you have your yellow belts full of green-circuits, but the red ones are just so much more complex. You need to set up the entire oil production chain for that, which is tedious and you probably rushed it just 'get a few red circuits so I can get my electric furnace'...
I say, take a step back, take some time and really automate plastic-bar production (yes, even the oil wells and refineries, and don't just put rocks in a container, belt them over there like a grown-up)
Only after producting enough for a full red belt, should you continue expanding into other branches, like robots and faster belts.
Yup, Factorio is a nice way to learn about supply chains.
Unfortunately, like almost all videogames, it assumes the whole system is run by a benevolent dictator (i.e. the player). In real life, most of the complexity and most of the waste comes from the system being built incrementally and operated by great many parties in a mix of cooperative and competitive relationships.
Real life work in the tech industry at a large employer is like a playing some sort of multi-player game of Factorio where you can't actually see what's going on outside of your little corner of the factory. Once in awhile the logistics bots will all just vanish for twenty minutes, or the power will go out, or the belt with copper plates will suddenly be carrying iron plates. There are all kinds of blueprints to make your life easier, but most of them are deprecated or obsolete, and the one your really want is buried in some email chain.
Factorio is a nice and simplistic (and fun, for a while) way to demonstrated many aspects of software and product development.
You go through basic product planning and design, first quick MVP, then some feedback loops where you recognize some needed design changes, etc. Then once you have it figured out, you want more.
So you start scaling up. That scaling often necessitates refactoring, because it necessitates space and time management (no sense having a bottleneck in your system which limits your growth potential).
Then you have the aliens which represent unexpected problems and failures.
A while back someone posted about playing Factorio with job candidates as a way to see how they thing and solve problems. This is probably much better than most tech interviews. If you can be decent at Factorio, you can probably be pretty decent as a software developer.
I feel like the world could use a series of Katherine of Sky-narrated video tutorials on how to build out real-world infrastructure and supply chains.
"...and now let's see if we can get our shipping container shortage worked out; wait, what's this? Oh no, we've got a ship stuck sideways in the Suez, and all of the stuff and all of the things are stuck in a traffic jam in the Mediterranean and the Red sea. The sadness is real."
Crazy idea: make cars that don't rely on microchips and software. As a bonus, they'll probably last longer, be cheaper to repair, and won't distract drivers as much.
There is software in too many consumer goods, usually with very little benefit to the end user, beyond marketing and being able to justify a higher price tag (oooh, it's a "smart" toaster). I don't need the Toyota equivalent of an iPad on my dashboard.
unfortunately the volume of regulations regarding automotive technology doesn't allow for this. if Toyota or any other manufacturer wants to make a chipless car, first the law makers have to allow them to.
I'm not aware of how you can do emissions monitoring through canbus (required) without chips. not sure how you can do rearview monitors (required) without chips. there are countless other things that are regulated that require chips. and competitor pressure for assisted driving technology like lane assist, blonde side monitoring, navigation/gps/etc all require chips.
the dream of going back to a chipless is a nice one imo, but they are just not legal.
Most of the biggest safety features that had the most impact were developed in the 1960's and 70's after people like Ralph Nader really pushed the auto industry to do better. There was a second big bump in safety in the late 80's and earlier 90's with the addition of airbags.
I'm pretty sure you could design a car with few or no computers in it that would be on par with most cars on the road today in terms of safety. Sure, you'd lose some safety features like backup cams, but nothing that huge compared with earlier safety improvements.
One fallout of this is the rise in prices of old / used cars. To give you an idea, a 2018 Toyota/Honda minivan is Canadian dollars 10,000 higher than pre-covid times.
It's ok for folks who have a newish car and want to buy another used car as their current car prices would have increased. But if you are like me, who drives a 15+ year rusty old car and is desperate to buy a 3-4 year old car, then good luck. Not only are the prices much higher (and your car's value is junk) but at the same time, inventory (even for used cars) is super low.
I would have loved to live in a City / Country where car is not necessary but this city I live is built for cars...
Purely as a joke:
Maybe car manufacturers should revive the production lines to produce 1980s Toyota Cressidas, Camrys and Chevy Impalas.
My guess it that it is like a refinery, building the factory takes too long with a large capital outlay. For instance, it may take a year or two to build and cost (let's guess) $500M. Now in that time, let's say all the existing players ramp back up (or expand!!) and there is no shortage. You now are producing chips that are cheaper elsewhere and it is hard to recoup your investment. Also, you may be limited on where you can find people with expertise in this area.
In theory you could wire up an old pentium or 386 and program it to do the same thing some of these chips do but you have the same problem there. No on has a 5M supply of 386s just sitting around in good condition.
The minimum cost of entry is in the hundreds of millions to billions, it's not especially environmentally friendly, and you're competing against what would normally be fully-paid-off old production lines from the incumbents.
There's a thriving small business design industry, but the manufacturing is a classical capital-intensive manufacturing business that also requires very specialist staff.
As a chip supplier, I'd be feeling a lot of pressure right now. In the short term you can squeeze and the tail can wag the dog for a bit. But longer term this opens the door wide open for new competitors in the market and / or vertical integration.
I don't think chip suppliers are playing games here, are they?
I think in general all chip manufacturers are at capacity and it comes down to getting in line. And I'm sure many chip manufacturers are trying to expand their capacity. I can't imagine they're sitting there thinking this will last forever.
> But longer term this opens the door wide open for new competitors in the market and / or vertical integration.
Not really. Chip fabrication requires enormous upstart cost - IIRC, TSMC plans with something like 10-20 billion $ - and a lot of time, to the tune of three years at least (https://pr.tsmc.com/english/news/2033). There are not many companies in the world who have that amount of cash lying around, and even the ones who do like Apple still resort to using TSMC.
Not to mention it's not just the machines from ASML and a host of other vendors plus the cost of building factory-sized ultra clean rooms, but you also need the expert staff trained to operate the entire setup and a lot of fine tuning of parameters which are closely guarded secrets...
> There are not many companies in the world who have that amount of cash lying around
Which is why establishing a chip fab to me seems like an obvious national goal. It's a booming market with costs of entry that few private companies can afford, why not make it a national capability? Resilience and profitability in one package.
IT doesn't have to be. You can be producing chips in a month if you are willing to pay. A clean room can be created, and the process of making of making chips one at a time in labor intensive processes is known. Just that nobody is willing to pay $50k each for their chips, and you need to get that price to pay for all the skilled labor to make a chip one at a time in a lab.
It takes years to setup a fab, but in the end it is a lot more cost effective, which is nobody is bothering to do the manual process even though we know it will work.
Maybe? It seems to me the overheads of establishing a fab process anywhere near the incumbents are astronomical. I would guess that even this bottleneck in supply would represent a minuscule fraction of that overhead. What are the actual numbers?
>> Maybe? It seems to me the overheads of establishing a fab process anywhere near the incumbents are astronomical.
It depends which parts are in short supply. A lot of automotive parts are still on 20+ year old nodes. 90nm to 130 or even 180nm. I would guess those are not the parts experiencing shortages though. So that leaves the fancy stuff. Bummer if a car can't be built because the infotainment SoC can't be obtained because it's competing for production with crypto mining GPUs.
Or cheap. Trying to game a short-term downtick in supply by spending 100 Bn USD only to come out the other side as not competitive when you're up-to-speed and your competitors have an abundance of supply and can undercut you by 20%.
I've noticed that the shortage of chips is also strongly driven by speculators simply buying up everything in sight and trying to resell at multiples of the cost.
That is a whole different level - consumer retail as added middlemen. Manufacturers who include multiple in one project don't buy just retail which is oriented at one-at-a-time.
Parent was speaking of the chip shortage in general, which goes way past cars. Car manufacturers will do what they can to isolate themselves from the open market (and buy the numbers and have the political backing to do so), but demand for non-car parts affects allocation of production capacity to their demands too.
> designed to go in to Toyota cars?
Chips rarely are designed for a specific car, and a car will also contain quite a few that are not strictly specific to automotive.
That makes no sense. I wonder what they mean by "fake" chips? Are they simply not placing the chip on the board, or are they using a footprint compatible different chip (unlikely), or are they completely redesigning the board with another chip which has much better availability? (most likely)
Presumably they are building cars but leave entire modules out, and then fit them later as supply arrives. Has some benefits over stopping production, if you can afford to have a stockpile of cars around.
I wonder if there will be a long term shift in supply chains toward less "asset light" and more vertically integrated operations with sourcing moved closer to end market demand.
I was speaking to a car dealer client the other week and heard some funny stories, like selling off cheap batches of vans with various non-essential electronics missing - just holes in the dash - and the promise that units would be available to fit later.
On one hand, Toyota buys so many chips that their supplier will probably prioritize their orders.
On the other hand, Tesla is tiny compared to Toyota but is probably more flexible and can adapt faster, e.g by using alt chips with new firmware and by using fewer chips per vehicles (to be proven, but we know Model Y has half the number of ECUs of Mach E / ID.4 for instance).
Also, without dealers, Tesla could better manage their build-to-order system and pricing (to push customers towards high margin vehicles and forgo volume growth while the shortage continues)
I don't see this raised anywhere -- but what's so bad about producing fewer cars (the poor neglected shareholders and exec bonuses aside)?
It's almost as if we would need to lean into this, reducing growth and producing fewer cars would be in line with efforts to mitigate the drivers of climate change.
What if car manufacturers pivoted their KPIs and focused on making long-lasting, serviceable vehicles? Toyota is already the worldwide leader in these, as evidenced anywhere that's not smoothly paved suburbia-land.
>It's almost as if we would need to lean into this, reducing growth and producing fewer cars would be in line with efforts to mitigate the drivers of climate change.
Newer cars pollute far less than old cars.
>What if car manufacturers pivoted their KPIs and focused on making long-lasting, serviceable vehicles?
They do make long-lasting, serviceable vehicles. Where have you been?
>(the poor neglected shareholders and exec bonuses aside)
Well, to provide a different perspective, there are car plants around the US that have been shutdown for months and the people formerly employed there haven't been able to work.
Not necessarily arguing that more cars are better, just its not only shareholders and executives who are hurt by the chip shortage.
Cars tend to diminish quality of life. Local, walkable and cyclable neighbourhoods on the other hand enable people to flourish. When people have to travel by vehicle, trains and trams are superior to cars.
Cars are only diminish quality of life when there are too many in a given area. For every person along the way though a car is a greater improvement than no car. Sure each one harms the overall quality of life, but the individual is better off.
Have you even been to the developing world? We mostly drive old junkers that were discarded by Americans and Europeans after 15 years of use for breaking and polluting too much.
Can someone explain to me why this wasn't the case before covid? Are the companies who are ahead of the automakers "in line" ordering more than before covid?
Cars are not a large market compared to cell phones and other users of ships. Cars are louder than the rest, but not bigger.
They typical car lasts 10-15 years. Cell phones about 2. More people have a cell phone than a car. Sure the car has more chips, but not by enough to make them bigger than phones. (Phones and cars mostly don't use the same process)
Simplest answer: Demand has gone up overall for technology like tvs, computers, game consoles, etc... Meanwhile, during covid the ability to scale (production and supply chain) to meet that demand has been difficult.
> Taiwan Semiconductor Manufacturing plans to build new factories in the US and Japan
I can't help but think that this massive shortage is setting up and equal an opposite reaction 2-3 years down the road: a glut as all this new capacity comes online. Especially given that because companies are now scrambling for chips, they're likely to over-order to ensure future supply.
There is a lot of scalping going on. I keep an eye on certain parts and as soon the stock comes up, it disappears within minutes. Then you can buy all those chips on AliBaba at 10 times the price.
I think government should look into that as this is a huge problem for many businesses.
I looked for a simple non-electronic car recently to buy, and found out that the government has mandated numerous safety systems requiring electronics like backup cameras, no seatbelt alarms, blind spot monitoring, lane assist etc, and in the upcoming infrastructure bill there is a rider to add breathalyzers to every new car made in America. (ref below)
Is there an officially designated cost/reduced risk ratio that policy makers can go by to determine if a regulation is worth while?
Is a regulation that costs 1 billion dollars to save 10 lives at 100 million a life considered worthwhile?
Is a regulation that costs 1 billion dollars to save 1 million lives at a cost of 1000 a life worthwhile?
Is there even an officially designated cost per life saved for new safety regulations?
If not it seems like a slippery slope, and the government can never overreach as long as it can justify the regulation by saying it saves a single life.
What are these chips and what is preventing us from scaling up capacity? I’m not challenging that it’s difficult, but the reporting seems shoddy. Maybe I’m the only one who wants to understand this stuff, but these kinds of questions always seem obvious to me (same with COVID vaccine manufacturing).
Here’s a good rundown: it ultimately all comes back to chip fabs being huge operations with massive upfront costs which makes them sensitive to both the pandemic’s direct effects and secondary problems like the way the auto manufacturers slashed orders in 2020, forcing the chip manufacturers to sign other contracts to avoid idling that much capacity[1], and unrelated problems happening at the same time like cryptocurrency pulling capacity away from useful applications.
Does anyone know the particulars of the shortage? Talking more about the commodity chips. Very hard to get anything from TI, ST or Microchip. Which fabs and nodes are specifically overloaded?
Actually, Toyota moved away from JIT after 2011 earthquake when several of it’s factories had to stop production due to lack of parts from other factories impacted by earthquake. One of the change was increased inventory levels of components.
Toyota is one of the last automaker to reduce production due to the current chip shortage, because they had enough chips for 18-24 months of production.
Edit: It seems some of Toyota factories in Southeast Asia have shutdown due to Covid spread in those countries resulting in shortage of parts supplied to factories in Japan. Reported to be 40% reduction in production.
Relevant: The Security Value of Inefficiency by Bruce Schneier
> This drive for efficiency leads to brittle systems that function properly when everything is normal but break under stress. And when they break, everyone suffers. The less fortunate suffer and die. The more fortunate are merely hurt, and perhaps lose their freedoms or their future. But even the extremely fortunate suffer — maybe not in the short term, but in the long term from the constriction of the rest of society.
In UK, where NHS is publicly owned, it was actually policy to have 90% occupancy of ICU beds. If it was less than that, the "extra" beds would be removed.
From a public health standpoint it makes more sense to have two hospitals with 100 beds at 90% capacity than one hospital with 300 beds at 60% capacity. It's leads to better patient outcomes to have the hospital staff work overtime compared to rapidly hiring and training new staff whilst the hospital is being overrun.
Not the parent, and not a backup for the specific claim, but I know that Tory governments since Thatcher have been taking the strategy of misapplying business efficiency tactics to NHS, then when they don't make sense and cause worse outcomes claim that it's because government was involved at all and call for privatization.
Those exist because the hospitals are privately owned. An area doesn't want hospital companies getting into a pricing war and then both going under leaving the area without hospital service at all.
There'd be no reason for it with a public health care system.
The government tries to keep medical care expensive to avoid competition that might result in some instability so the cure is … government running health care.
Robustness isn't incompatible with capitalism, it's incompatible with any system where the government is willing to swoop in and bail out companies that fail. Companies that plan around failures/shortages/disruptions lose the ability to profit from their planning, while those that didn't plan ahead get showered with free money or cheap loans.
Why is it not affecting new car pricing as dramatically? And why would that continue? Used car prices cannot surpass new car prices surely, so at some point new car prices will be raised because of the low supply and high demand, or new car orders won't be fulfilled for months later
Used cars have surpassed new car prices in the past. Generally because new cars can't actually be bought at any price. A car today is sometimes worth more than a better car that doesn't exit.
I believe that driving an old car for longer has a smaller environmental impact than consistently driving newer cars as the bulk of emissions is during the manufacturing process. I have no data to support my statement, it's just my hunch. I'd be very keen if someone with the right knowledge can approve or disprove my statement.
If we take as given that "decent quality ICE vehicles are proven to last at least 320k km", then after accounting for both vehicles that are less than decent quality, and vehicles destroyed due to accident, malicious damage or poor maintenance long before they reach that figure, then a fleet average of 200,000 km doesn't seem out of the question.
The same factors would seem to apply to EVs (except perhaps poor maintenance, but I am not knowledgeable enough about EVs to be sure), so for the purposes of comparison, I figured apples to apples would be comparing expected lifetimes of both assuming they are not abused or neglected.
It seems to me that they are using an expected lifetime (in the "expected value" sense) of 200,000 km for both types of vehicles.
If those factors apply equally and dominate the reasons vehicles reach EOL, then the expected lifetime not varying significantly between the vehicle types looks like a reasonable assumption.
Using the real expected lifetime taking into account the circumstances that tend to render a vehicle permanently unserviceable in the real world looks like the correct approach to determine how manufacturing costs are amortised over the vehicle lifetime.
the same busted (and hard to repair) body parts will occur in both. Think AC, window motors, lamps and switches, etc.
plus, none of the manufacturers seem to be investing in easily replaceable batteries. They'd rather you buy a new car. May as well right? the batt replacement is 60% of the cost!
The opposite is true - the manufacturing process is responsible for an average of 7-10 tonnes of CO2, while the same vehicle over its lifetime will emit more than 50 tonnes from the exhaust.
Moreover manufacturers have been reducing their carbon footprint lately. As an example VW reports that 70% of the energy the use in plants is provided by renewable sources.
That being said while emissions rules have been getting more stringent over the years, they're increasingly being followed through introducing EVs, not improvements in engine efficiency.
> As an example VW reports that 70% of the energy the use in plants is provided by renewable sources.
This is a great start, but not where most of the carbon embodied in a new vehicle comes from. The energy used by the VW plants keeps the lights on, air conditioned, and powers tools for assembly. Most of the carbon embodied in a car comes from the energy it takes to mine raw materials and process them into useful metals.
This pales in comparison to the 20 tonnes of fuel a typical car is going to work itself through throughout its lifetime. And all this fuel has to be first extracted and refined.
This seems to be the crucial bit that is always missing from these discussions. I don't doubt that the CO2 emitted in the assembly of the car is less than in the driving. But I'm curious about all the other environmental impacts (of which CO2 is just one small bit). The destruction of wildlife habitat, the poisoning of ground water, etc, that's involved in the retrieval and processing of the raw materials, on up through the chain.
The question of whether to keep an old car or buy a new, cleaner car is difficult, with many important unspecified variables such as who 'owns' the emissions due to the manufacture of a car (the manufacturer? the first owner? all owners?).
This isn't true for mileage though. If you move closer to work, your commute will emit less.
That's not really the usual concept of "inflation". Every commodity fluctuates in price. Inflation is when the price of a unit of money falls. Conceptually, it's very easy to distinguish "cars cost more dollars because cars are more expensive" from "cars cost more dollars because dollars are cheaper". In practice, it's difficult to measure the value of a dollar. But in general, inflation looks more like the price of everything going up, and less like the price of cars going up.
(Currently, a lot of different prices are going up, and current inflation is high. But you can't just point to Toyota raising prices and say "See? This is what inflation looks like!" That is what inflation looks like, but it's also what not-inflation looks like.)
Good! Toyota has been sabotaging clean cars because they can't compete [1][2].
Most well known car brands have great electric cars now, but Toyota and their oil lobby buddies are trying to halt the progress. The decline of Toyota sales is good news for the world.
Please write back when Tesla learns how to correctly apply paint to a car or fit body panels, or well, pretty much everything else that makes an actual car a car instead of a disposable gadget.
The concerns you express aren't noticable or bothersome except to a small percentage of enthusiasts. Teslas are mechanically far more reliable and require less maintenance that other cars.
The data doesn't bear that out. Tesla's have consistently ranked near the bottom in reliability surveys and indexes. They're amazing cars, but they've got a long way to go on the build quality and reliability measures.
Toyota been saying "don't worry guys, we fixed the rust issues, the new ones won't be rusting out" every year since 1985 and running a more or less rolling recall since the 00s.
Or was that not the implication of your comparison?
Teslas will last a long time because the most important indicator of vehicle reliability is one that they share more or less 1:1 with Toyota, customers who who put very easy miles on vehicles and dutifully maintain them.
That said, I fully agree that we have nowhere near the length of data set we need to know how Teslas will fare in terms of reliability and longevity (not the same thing) after adjusting for how they are used.
> Or was that not the implication of your comparison?
The implication of my post is Toyota operates on a different scale than Tesla, and due to insufficient time having passed since the advent of Tesla, a claim cannot yet be made. I referenced Toyota because of its objectively highly ranked reliability based on resale price and famously low maintenance costs.
>share more or less 1:1 with Toyota, customers who who put very easy miles on vehicles
Like all the Toyota trucks used in military operations around the world? Those kind of "easy miles"? Comparing these two companies, with vastly different scales of operation, is kind of silly.
The edge between manufacturers in any given measurable attribute of vehicle performance is far, far smaller than a bunch of screeching fanboys on the internet would have you believe. If it weren't you'd see far less diversity of vehicles on the road.
The humvee is also used by militaries all around the world. It's not known for particularly great reliability. Militaries have a much difference set of objectives when it comes to labor vs supply chain complexity vs cost than civilian entities and individuals do.
Poor countries in Africa and the middle east use Toyotas a lot for the same reason they still use 7.62 intermediate cartridges a lot. It's what they have, it's what their supply chains are tuned for. It does the job they need, not necessarily with maximal efficiency but well enough they can't justify the cost of switching.
Meanwhile in the civilian market Toyotas cost more, don't do good incentives/rebates and financing is more limited. This drives people on a budget to other brands. This means Toyotas wind up in the hands of people who treat them proportionally nicer. A Tacoma rolls off the lot and into an upscale garage. A Colorado rolls off the dealer lot and into a commercial fleet where it will be driven by a bunch of people who aren't paid enough to care. A Camry will have one ass in one seat for the first 100k and it will go from home to work and home to work. An Altima will spend its first 100k dragging a family of four all of the places they need to go. A Sienna's first owner will go to home Depot, buy 3000lb of pavers and rent the truck to drive it home. A Town and Country's first owner will put that in the van without thinking twice.
See what I'm getting at here? Being expensive up front means that only people who can afford to be nice to things get their hands on them, at least initially, that means the vehicles rack up more miles and years before they see hard use. Any vehicle not fundamentally flawed to begin with can look reliable in the hands of these people. I can present other examples of this if Toyota is too emotional of a topic for people to discuss.
Also it should go without saying that we're talking in broad generalizations here.
I do agree with you that the scale difference between Tesla and Toyota is massive and comparison between them is silly.
While there might be a slight effect of Toyotas being used less intensively because disproportionally higher income people buy them, I doubt it is a material effect. The people that are not going to put pavers in their car because they can afford not to and want to keep it nice are buying Denali Yukons or other more expensive, luxury vehicles.
Toyota did not start expensive, and even now it is not the most expensive ($/mile). They earned that reputation over many years, and while they may have raised prices, the resale market does not show any evidence of the quality slipping.
>While there might be a slight effect of Toyotas being used less intensively because disproportionally higher income people buy them, I doubt it is a material effect.
It is a very massive material effect.
>The people that are not going to put pavers in their car because they can afford not to and want to keep it nice are buying Denali Yukons or other more expensive, luxury vehicles.
That's exactly the point.
Look at how the Eddie Baur trim 90s Fords SUVs were/are over-represented on the used market for a very long time. They didn't get rode hard and put away wet like the lower trim ones. Look at the market for used GM sedans. The Caddys are pretty much always in better shape at a given age than their downmarket equivalents.
The difference is that Toyota, because of their unwillingness to readily offer good financing and incentives (driving up the effective "out the door" cost) ensures that the buyers of their vehicles are wealthier than those of comparable brands. Even at low price points this holds. You don't see a lot of Echos and Yaris's street parked in low rent neighborhoods whereas the Soul, Sentra and Focus are staples.
Other brands have the same effect going on (Volvo is a good example) but Toyota's is massive and they lean into it much more than anyone else.
>Toyota did not start expensive,
It has always been expensive, at least as far back as the 80s. Compare MSRPs to comparable cars from the domestics.
>the resale market does not show any evidence of the quality slipping.
The market is based on consumer perceptions that are driven mostly by out of doubt hearsay. It is unwise to trust the market to show much of anything.
> Oh ok it's only allowed to making negative claims about Tesla
I do not understand what this means. But I am simply stating that the data for ICE vehicles is far longer and the dataset larger, especially for Toyota and other reputable brands, to make a conclusive claim that Tesla’s reliability (and even maintenance) is less over the whole life of the vehicle.
Although I do not doubt that it is possible for electric vehicles to achieve this claim, and maybe Tesla already has.
Most people would consider the ability to put together the stuff you do see as a pretty good indicator of your ability to put together the stuff you can’t see.
If I read your exuberance incorrectly, I apologize.
Toyota has a lot invested in the hybrid architecture. I doubt they’ll go full electric for some time and frankly it won’t make sense to do so for another 10 years.
Still, there are a lot of great options out there right now. For example, the Bolt from GM is a great little car. I inspected one up close two weeks ago side by side with a new Model 3. While not a great comparison in terms of function, the build quality in the GM model was just vastly superior by nearly every measure.
The tone of GP is poor, but yes, the paint is really important if you want your car to last more than 5 years, especially if you live near the sea. And if you only take your car out on weekend and summers and can not put your car in a garage, a poor paint job will cost you even more.
Large-battery EVs (LBEVs) are an unscalable luxury, both for cost and recharging infrastructure. Even if Toyota has chosen to advance its interests more aggressively, the criticism of the EV market is valid.
The electrical infrastructures of the US and the EU are not able to support a total adoption of EVs, especially not LBEVs. Consumers appear to be choosing LBEVs, not small-battery EVs. They want range even though most people need only a range of less than 100km. [1]
Toyota's (or anyone else's) hybrid vehicles are a better choice for combination short-range/long-range drivers, where short trips are clean, and long trips use the energy density of petrol.
IMHO what Toyota should be doing is adding a larger battery to its hybrids, e.g. 17 kWh instead of 8.8 kWh. I believe the Honda Clarity has a 17 kWh battery.
From your articles:
“Toyota’s view is also that countries are jumping in with the idea of the electric-vehicle endgame without a real plan, and it’s more political showmanship than sound planning,” Mr. Liker said.
Toyota will inevitably be marketing EVs, though.
"For one, China, an important market for Toyota, has moved aggressively to require automakers there to make electric vehicles. That has spurred Toyota to start producing electric cars under a joint venture."
So not sabotaging, only obstructing. I'm so pissed at all the auto-makers (with the exception of Tesla). The writing has been on the wall for at least a decade in large neon letters, but they all seem taken by surprise that they suddenly have to produce electric cars.
This still is not "obstructing". Only it is trying to slow down coercive mandate alone, no obstacle to consumer buying an electric car on own initiative!
Psst you can avoid all of those issues by not buying Toyota. Stop trying to regulate everyone else into what you want. If these EV's are so good it shouldn't be an issue at all.
Position in many of cases I have heard has been that electric vehicle is just as good. Are you taking a position that they are representing some quality of life decrease and that the state must force us to accept this?
I bike religiously so sorry you're not going to one up me on the "polluting" less scale. Are you going to come take my ICE vehicle from me? Didn't think so.
Drop the authoritarianism it's unbecoming. There's a great country I can suggest you to move to if you want government control over everyone, feel free to PM me for details.
I guess 18 months of doing the extremely heavy lifting for the whole industry has taken its toll and now they're in the same boat.