Then we can understand how teslas forward thinking, approach and vertical integration allowed them to navigate the crisis and deliver record numbers of vehicles, while competing automakers saw their production collapse in 2021. Lets get going. Okay, we all keep hearing this term chip shortage being thrown around on a near daily. Weve talked about it countless times here on the channel this year. But, to be honest, we never really did much of an investigation into why this situation is occurring and also why its taking so long to figure out step, one is understanding how chips get made, because its pretty wild one of the mistakes that ive been guilty of. In the past, and have heard elsewhere in the tesla online, space is assuming that tesla makes their own chips. They dont tesla designs, their own custom chips, but the physical creation is done by third parties making their own computer chips sounds like something that tesla would do, though right they can make a whole electric car. Why not also do all of the little microchips and semiconductors that go into it as well turns out that making computer chips is really difficult and expensive and time consuming to do thats? Why there are only a small handful of global manufacturers that are able to do it, and this is basically the heart of the entire problem. Computer chips are made in production facilities that are often referred to as foundries or fabs. You can imagine these foundries as basically the opposite of a tesla gigafactory.
They are not fast, cheap or efficient, not even close. The foundries that manufacture microprocessors typically take three to five years to build. They require years of planning ahead of that, and the cost of one of the foundries can range between 10 and 20 billion dollars. That means the supply chain of these semiconductors is heavily reliant on accurate predictions and forecasting. They have to kind of work 10 years ahead with their infrastructure projects. So when unexpected variables come into play like the sudden rise of cryptocurrency mining with gpus or say a global pandemic that flips the world on its head, then the whole industry gets totally bunged up and supply shortages are guaranteed to follow. Chip companies cannot pivot on a dime theyre more like a tractor trailer, making a three point turn or a giant cargo ship stuck sideways in the suez canal takes a long time to change course. So thats pretty wild, especially when we consider that a very advanced vehicle factory, like teslas giga shanghai, cost around two billion dollars and was constructed in about one year. Even the gigafactory in berlin, probably the most advanced manufacturing facility of any kind in the world, is coming in at a cost of around five billion dollars and about a year and a half to build. Of course, a lot of the reason for this is that microchips are much more sensitive than suvs during the production process. The clean rooms where the chips are assembled need a spectacular amount of control and the acceptable particle count in a semiconductor.
Clean room is far less than even a surgical theater. They need a very fine level of control over vibrations, heat, humidity and other factors and thats. A big reason why tesla couldnt ever just add a chip making department into a gigafactory. The vibration from the idra presses alone would probably make the concept impossible. There are over 3 000 manufacturing steps that a silicone wafer needs to move through to become a microchip and the process from start to finish, takes about two to three months. In an ideal situation, the lead time on a chip orders has now grown to around 16 or 18 weeks. The automotive industry has famously been hit particularly hard by this chip shortage and the reason for that basically comes down to short sighted making and a lack of respect for the chip making process. When the shutdown began in the spring of 2020, car makers like gm and ford kind of freaked out and cancelled all of their microchip orders, they didnt know how long production was going to be shut down for they didnt know how long the demand for new cars Was going to decline and thats fair? To be honest, no one knew what the hell was going on then, and we still dont even really know for the most part, but canceling their chip supply was probably the stupidest thing that those companies could have done, because there would have been no harm in just Stockpiling a bunch of semiconductors until they needed to be used and because we know how expensive and limited the resources are to produce these chips.
The suppliers werent just going to sit around and wait for gm to restart their order. The suppliers moved on to sign deals with new clients because, as the demand for cars declined, the demand for laptops, monitors, webcams, smart home devices, ovens, televisions, ipads, all of that stuff went through the roof and our demand for tech products has not come back down. If anything, it just continues to accelerate and the amount of things that come with computer chips built in these days is just staggering. Smart light bulbs, smart wall, sockets, smart, blinds on the windows instead of one vacuum. Cleaner ive now got a small army of roombas. In my house, so when the demand for new cars finally came back to previous levels and the automakers went back to their old suppliers and asked to re up their orders, they basically got told that they were out of luck, get in line with everyone else and Thats, what led to the phenomenon of ford and gm, leaving tens of thousands of pickup trucks just sitting in parking lots waiting for parts to arrive before they could be shipped to dealerships gm started going as far as removing modern tech features like the collision detection and Blind spot monitoring, sensors from their trucks, lower margin vehicles with low demand like sedans, were sacrificed to make chips available for more popular models like trucks and suvs. So no surprise to anyone that tesla vehicles require a whole ton of microprocessors and semiconductors to do what they do, and none of those tech features can afford to just be sacrificed.
The way that they were in a traditional vehicle. Electric cars are a digital product. Theyve got more in common with my roomba than they do with an oldsmobile. Ford has said that their focus economy car needs about 300 chips, while the mustang mach e requires about 3 000 chips. So why didnt tesla get wrecked by this whole chip shortage? Well, for one, they never made the mistake of canceling their orders with chip suppliers and shutting down indefinitely. Tesla did shut down operations at their fremont california plant in 2020, but elon musk was famously very reluctant to do it and was in a big hurry to get back to work. Whether elon was right or wrong about that stance is debatable. It doesnt really matter anymore. Thats in the past, but he absolutely was right that, from a business perspective, the best choice was just to keep making cars and hope that the world will normalize before too long. An object in motion will stay in motion while most of the competitors stopped and then tried to restart and still havent been able to get back on pace. Elon has used the metaphor of those tortoise and the hair saying that the moral of the story isnt that the tortoises are faster than the hairs, its that the hairs lose when they become complacent anyways. The big other factor at play is teslas vertical integration like we said earlier, they do not make their own chips, but they do design their own custom chips.
So while everyone in the world was clamoring over the generic microcontrollers, tesla was able to just cruise through its like people who already had bidets installed in their house, watching everyone fight over toilet paper last year. Another aspect of vertical integration is that tesla writes their own code in house. The company designs a lot of important chips that they need for advanced functions, but still rely on a bunch of generic controllers for more basic features. So when a situation came up where they couldnt get a particular microcontroller that they would typically use, they could just sub it out for something different. That would serve the same purpose and then rewrite the vehicles operating system on the fly to accommodate for the change in hardware tesla constantly just pivoted to use whatever kind of chip was available at the time and rewrote their code around it. Its pretty clever and it allowed them to move forward while competitors were stuck with software and hardware architectures that were built for them by third parties now thats, not to say tesla dodged the bullet completely. We know that they sacrificed any production of the model x. Suv to give more capacity for the model y makes sense. Model x is an expensive kind of niche product. While the model y is spectacularly popular with just about every demographic, then there are small changes that we know of like removing power adjustable lumbar support from the passenger seats in the model 3 and model y, its a sacrifice, but its nowhere near as drastic as removing Driver assist sensors tesla calculated that hardly anyone used that feature so they cut it no big deal.
The big question now is: how do we get out of this situation because chip shortages arent just affecting cars? This is making it hard to get new video game consoles. Graphics cards, washing machines, all kinds of stuff that we dont necessarily need, but we really like to have well. The chip makers are working on it but, like we said off the top, this is a slow moving process. So, even those who were quick to notice the changes in demand back in 2020 will still not be able to get their new production facilities up and running until 2023, because thats just how long it takes companies that waited until this year to start developing new infrastructure Wont have it until 2024, and then there are external factors that are beyond anyones control that can still have big impacts on the industry. The worlds largest manufacturer of third party semiconductors is based in taiwan, an island that is experiencing its worst drought in 50 years. The semiconductor plant requires as much as 15 000 tons of water per day thats a problem. Taiwan is usually one of the rainiest places on earth and the plant pulls water from a reservoir that is constantly being topped up, but not this year. That could be a one off event or it could be a symptom of climate change that will only get worse in years to come. Then there was a massive fire at a semiconductor factory in japan. That was the number one supplier to the automotive industry.
The company has been able to recover, but this one incident made a bad situation even worse and set back recovery by months or maybe even a year, so the fix is more. Investment in semiconductor infrastructure, particularly more domestic production here in north america, would go a long way. Luckily, this is one thing that president joe biden gets during a summit of the chip shortage in the spring biden held up a silicon wafer and acknowledged. This is infrastructure and hes pledged 50 billion worth of government funding to help american companies step up their game on research and development in the semiconductor industry and thats. No small amount of money, but 50 billion is just a drop in the bucket to solving this problem. On a global scale, its believed that there will need to be between two and three trillion dollars worth of new investment into semiconductor production. To get us to a level where we cannot only meet the current demand, but also get into a position where supply can grow into the future. Elon musk has said that tesla still has no interest in building their own fabs or foundries. Instead, they are moving ahead on a new deal with samsung that will secure the advanced microchips that they need for teslas next generation of full self driving hardware. So its one of those things that we didnt realize was a problem until it was too late and now were just stuck waiting around for it to get fixed im.
Sure, weve all got a story at this point about trying to get our hands on some kind of tech that was just impossible to find whether its a tesla or a ps5 or a washing machine lets chat about it. In the comment section below for more tesla news, delivered straight to your inbox, make sure to subscribe to our tesla space newsletter. We keep you up to date on all things: elon, musk, tesla, spacex, neuralink and boring company in one quick and fun to read package link in the description to sign up its the teslaspace.com and make sure to drag our emails over into your primary inbox. So we dont get lost in the promotions. Tab also dont forget to check out our new space race channel and subscribe over there for even more space exploration content. As always, if you want to continue to learn about everything regarding tesla spacex and elon, musk weve got two more video options for you on the screen to check out dont forget to give this video a thumbs up today.