Ukraine conflict to worsen semiconductor chip crisis

The global shortage of semiconductor computer chips has been dealt another blow.

While many companies are scrambling to build new semiconductor manufacturing facilities, experts have pointed out critical ingredients used in three quarters of all chip production are sourced from Ukraine and Russia.

According to a report from market intelligence firm TrendForce, Ukraine is a major supplier of raw gases argon, krypton, xenon, and provides almost 70 per cent of the world’s neon – with a further 20 per cent produced by Russia.

With Ukraine’s economy currently shut down, and sanctions in place to isolate Russia’s, the lack of neon on the open market is expected to drive prices up significantly.

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However, Dan Hearsch from AlixPartners says the impact of the Ukraine conflict won’t be felt immediately, as major microchip companies have been building up their supplies of neon in recent months.

"They saw this coming a little bit," Hearsch told Automotive News Europe.

"After the last couple years, [they] decided we're going to stock up on as much as we can."

It’s possible neon supplies could encounter longer-term disruptions though, even if the hostilities come to a swift conclusion.

Materials supply-chain analyst firm Techcet says neon gas production is a byproduct of steel manufacturing, with the gas sourced from Russian steel mills and purified in Ukraine. Even in peace, business relationships may take some time to recover.

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Carmakers have been struggling to meet demand for new cars in recent years, with a lack of semiconductors available to run the increasing number of computers and digital features found in modern vehicles.

Modern cars can use as many as 200 chips, while electric vehicles require as many as 3500.