The automotive industry has been crippled by, of all things, a chip shortage. But efforts to remedy the situation, including a push for the Biden administration to enact the National Defense Authorization Act, could have unintended consequences for American chipmakers.

Volkswagen, Ford, Subaru, Toyota, Nissan, and Fiat Chrysler are just a few of the automakers affected by the shortage, according to a Reuters report. In response, several car makers, including General Motors. have been forced to cut production, driving fears that the shortage could further damage the ailing U.S. economy.

However, it might not be as simple as using the National Defense Authorization Act to boost semiconductor manufacturing, as a bipartisan group of lawmakers have suggested.

While many of the chips used in American automobiles today are designed in the U.S., few if any are manufactured domestically. These chipmakers are fabless. They outsource manufacturing to companies like Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics, Supplyframe CMO Richard Barnett said.

According to Barnett, the auto chip shortage was caused by a cascade of market phenomenon tripped off by the pandemic. “The COVID pandemic has been massively disruptive, but it’s just one in a series of external dynamics,” he said.

With the onset of the pandemic, many automakers began ramping down production of passenger vehicles. “They were expecting a 50% ramp down, and they thought that that would extend into maybe Q2 or Q3 of at least this year, 2021,” he added.

However, while auto sales are still down, they are recovering faster than predicted. The problem is the semiconductor capacity they have come to rely on was no longer there, eaten up by competing industries.

“The story as it has unfolded, has revealed fragility and lack of resilience in the automotive global supply chain,” Barnett said. Everything from notebooks and webcams for remote workers, greater capacity in data centers to support software-as-a-service (SaaS) applications, and a console refresh have all eaten into the available capacity.

“It’s really a story of automotive versus consumer electronics and enterprise computing,” he said.

Further complicating things, Barnett said automakers and their suppliers aren’t just competing for standard integrated circuits, but also the fab capacity required to produce ASICs and other custom silicon.

While market uncertainty and bad timing on the part of the automakers played a role in the shortage, the problem is at least partially rooted in the fact that most chipmakers have gone fabless, explained Glenn O’Donnell, VP and research director of infrastructure and operations at Forrester Research.

“Building a wafer fab is a hideously expensive, time consuming, painful process, and a lot of companies said we’re not going to do that, we're just going to outsource that,” he said.

According to O’Donnell, so many chipmakers have gone fabless and so few fabs can produce chips of a particular process node and in sufficient quantities that the U.S. has been left in a lurch.

“It’s left us with a glaring vulnerability in the supply chain that if we need to ramp up capacity, we really can’t,” he said. “Our policymakers in Washington are terrified of that fact, and they should be.”

While it would be difficult for the Biden administration to force foreign fabs to boost production to meet demand, the National Defense Authorization Act could in theory be used to prioritize orders from U.S. chipmakers building components for the auto industry, Barnett confirmed.

In other words, U.S. chipmakers that also rely on external fabs like TSMC and Samsung could be forced to cut back on production in order to reallocate capacity to support automakers and other industries deemed critical to U.S. national security.

Reuters reports that some lawmakers see the National Defense Authorization Act as a way to help incentivize the construction of domestic fabs.

However, Barnett points out that while incentivizing chipmakers may help to bolster U.S. semiconductor manufacturing, it’s unlikely to do so in time to help automakers. “Semiconductor fab capacity is a super capital intensive industry,” he said, adding that it typically takes between two and five years to bring a new fab online.

And it’s not like the semiconductor fabs are unaware of the capacity constraints currently facing the industry, Barnett added.

TSMC recently announced it would increase its capital expenditures by between $25 billion and $28 billion in 2021 to address growing demand.

What’s more, both TSMC and Samsung are already looking to build new facilities in the U.S. and abroad.

In May 2020, TSMC announced plans to build a $12 billion chip fab in Arizona, after coming to an agreement over government subsidies and incentives. The fab, which will come online in 2024, will employ approximately 1,600 people and produce 20,000 silicon wafers a month using the company’s 5-nanometer manufacturing process.

Likewise, Bloomberg reports Samsung is investigating building a $10 billion fab in Austin, Texas to produce chips using the company’s 3-nanometer process.

However, neither facility is expected to come online until 2023 at the earliest.