President Joe Biden holds up a silicon wafer as he participates virtually in the CEO Summit on Semiconductor and Supply Chain Resilience in the Roosevelt Room of the White House in April. AP file photo

Shortages of semiconductors critical for automakers isn’t coming to an end anytime soon.

Tom Linebarger, Cummins chairman and CEO, told investor analysts he expects the semiconductor shortage to continue into next year while calling on increased domestic production of semiconductors to provide some supply chain certainty for car and engine makers.

“The thing we really needed in the U.S of course, as we need, we need domestic semiconductor production that’s targeted at the automotive industry,” Linebarger said in a conference call Tuesday. “I don’t mean to be pie in the sky about it, but strategically, it’s kind of a nightmare that we only have. All those semiconductor wafers are coming from pretty much one factory or one set of factories in Taiwan, and that we’re a very small part of that company’s output. That’s not the ideal situation for a supply chain.”

President Joe Biden has tasked Commerce Secretary Gina Raimondo, a former Rhode Island governor, to solve supply chain issues that include the shortage of semiconductors.

To end the shortage, Raimondo, 50, must bring back production of chips as well as solar panels and batteries on the premise that these sectors are key to prosperity. Raimondo echoes Linebarger’s sentiment that the computer chip shortage will last well into next year. The White House noted in a September report that the shortage could lop a full percentage point off economic growth this year.

The United States once accounted for 40% of chip-making worldwide; now it’s 12%. The cost of making a chip in the United States is 30% higher than in Taiwan and South Korea.

A chipmaker must spend tens of millions of dollars on a prototype before seeing any revenue, a barrier for start-ups.

“So if you ever said, ‘Hey, what’s the strategic plan?'” Linebarger asked. “The strategic plan has to be defined semiconductor manufacturers who think the automotive industry is more critical to their success and ideally to have some closer to shore, onshore, so that we can look at the total capacity and demand, because right now most automotive, most trucks and buses, are adding a significant portion of electronics. Each revolution or each time that their new product ramps come out, they add 30% more chips or sensors or something, and that’s not the way the industry semiconductor, the capacity of the semiconductors, is moving. So we need to add more capacity and we need to add target it at those customers.”

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Several automakers have blamed flagging profits on the chip shortage. Ford CFO John Lawler said there is demand for Ford products that can’t be met because of the chip shortage, including for the Mustang Mach-E electric SUV. Elon Musk has cited the chip shortage as a factor in Tesla’s finances even as the electric automaker notched record sales in the third quarter of $1.62 billion.

Cummins has also taken a hit due to the chip shortage and other supply chain issues. Jennifer Rumsey, Cummins president and CEO, said Cummins has started to see some improvement in semiconductor availability. That improvement hasn’t stopped the company from looking for additional ways to boost inventory.

“So it’s something we’ve been working really closely throughout the year and we’ve started to see some improvement quarter-over-quarter since the middle of the year in supply of microprocessors for most of our components that we’ve seen some growing disruption on other electrical components,” she said. “That has become a bigger issue for us in the second half of the year. And we have also in parallel been working and I think we’ll revisit inventory strategies as we are able to build inventory. Not today in the current very constrained environment. And we’re also looking at sourcing strategy and doing dual-sourcing back all the way to a tier 3 level to make sure we’ve got more flexibility in the future.”