A geopolitical dispute over basic chips is escalating into a global supply chain crisis for the automotive industry.

Honda announced it will cut production by half at its Alliston, Ontario assembly plant, which manufactures Civic sedans and CR-V SUVs. According to union leader Vito Beato, the reduced output will continue until Wednesday, followed by a full one-week shutdown starting Thursday. Partial production is expected to resume late next week.

The crisis stems from the Dutch government's decision to freeze operations and suspend Chinese control over Nexperia, a semiconductor subsidiary of Chinese firm Wingtech, citing "economic security" concerns. This move has drawn international criticism as an attempt to appropriate Chinese capital and technological investments.

With Nexperia's basic chips widely used in hundreds of automotive components—from door locks to air conditioning systems—automakers like Ford warn of massive production losses unless the supply issue is resolved quickly. Analysts note these chips cannot be easily replaced through temporary sourcing.

Unlike previous semiconductor shortages caused by pandemic disruptions or natural disasters, industry executives say this crisis can't be solved through production adjustments alone. Volvo CEO Samuelsson stated, "These aren't highly strategic components, but they're everywhere—in small microprocessors controlling various vehicle functions."

Nexperia generated about $2 billion in revenue last year, with 60% coming from the auto sector. The ripple effects are spreading, as Ford COO Kumar Galhotra warned of potential Q4 production losses across the industry without immediate solutions. Bosch, a major auto supplier, is preparing contingency plans for its German plants.

Barclays analysts noted that while alternative chips exist, critically low inventories (typically 2-3 weeks' supply) could impact suppliers imminently. The German Mechanical Engineering Association (VDMA) cautioned that prolonged shortages may disrupt manufacturers of generators, construction equipment, and agricultural machinery beyond the automotive sector.

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