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Semiconductor Shortages  -- Root Cause

Semiconductors are a large and complex industry impacting just about everything the world does, from opening a garage door to remotely flying a helicopter on Mars. The recent shortage has highlighted the dependencies and trying to explain the cause has become a new sport. Counterpoint believes it is a lack of investment as shown below. 
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Figure 1: Under Investment in Semiconductor Capacity

But even with the 2-year timeframe from new fab decision making to mass production, the industry has met the demand, with the obvious short term excess and shortages. Perhaps, a more timely explanation is the change in vehicle production, which in 2020 dropped over 16% Y/Y.  The unusual supply chain dynamics in vehicle production is the 18 month qualification cycle for parts and the JIT, revenue recognition, which puts the onus on suppliers to carry parts in inventory until installed.  When orders stopped and the inventory increased, semiconductor suppliers looked to other sources of demand, many of them with higher margins, so that at the end of 2020 and early in 2021, the automotive IC inventories were depleted but the suppliers had shifted their capacity to other demands, notebook PCs, for instance.  As a result, the balanced supply chain exited equilibrium and the highest margin parts got the attention of suppliers, which forced the vehicle supply chain into a tailspin as their current suppliers moved to other opportunities and the long qualification cycle, made it almost impossible to switch suppliers, just when demand exceeded expectations. But don’t worry about a solution, our government has allocated $50B to solve the problem.
 
Figure 2: Vehicle Production and Q/Q Change