The automotive industry, still recovering from the severe semiconductor shortages of 2020-2021, is bracing for a new wave of supply constraints. This time, the bottleneck centers on dynamic random access memory (DRAM) chips, a critical component for modern vehicle features, from powered seats to advanced safety systems.
Why This Matters Now
Semiconductors have become ubiquitous in cars. Modern vehicles rely on thousands of these chips to operate everything from infotainment to crucial driver-assistance technologies. The current situation isn’t just about quantity; it’s about the type of chip now in demand. The previous shortage focused on less sophisticated components, but the new challenge involves advanced DRAM, which powers cutting-edge features.
AI Demand Takes Priority
The core issue is simple: AI-focused data centers are outbidding the automotive sector for semiconductor manufacturing capacity. According to S&P Global, the higher profit margins in supplying hardware for artificial intelligence applications are diverting production away from automakers, despite overall semiconductor production increasing since 2023.
The market is heavily concentrated: three companies control 88% of DRAM chip supply, giving them significant leverage in prioritizing customers. This isn’t a matter of overall scarcity, but of where those limited resources are directed.
Price Spikes and Forced Upgrades
Analysts predict DRAM prices could surge by 70-100% between 2025 and 2026. Given the increasing number of semiconductors in vehicles, and stricter safety regulations mandating more advanced tech, this translates to potentially significant price increases for new cars before the end of the decade.
Adding to the pressure, manufacturers are phasing out older chip designs, forcing automakers to upgrade their systems. Even though these older chips remain in widespread use, production will halt by 2027, leaving automakers with only two years to adapt. The majority of current ADAS technologies rely on these older semiconductors, meaning a rapid shift to newer chips is inevitable.
The Bottom Line
The looming chip shortage isn’t just a supply chain issue; it’s a strategic realignment. AI is driving demand, and automakers are secondary in the equation. This will likely translate into higher vehicle prices and force manufacturers to accelerate the adoption of newer, more expensive technologies. The automotive industry must adapt quickly or risk being priced out of the market.
