Volkswagen and European carmakers face crisis as Dutch Chinese chip dispute halts microchip supply

The modern motorcar depends on a complex network of thousands of electronic components, but the current disruption to just one key element—a microchip—threatens to stall production lines across Europe. Volkswagen, one of Germany’s automotive titans, has issued warnings to staff about anticipated manufacturing interruptions due to an acute shortage of Chinese-manufactured microchips. The alarm, however, extends far beyond VW. Industry-wide anxiety is growing, with the European Automotive Manufacturers’ Association cautioning that the majority of carmakers rely to some degree on the same Chinese-made semiconductors.

This latest crisis originates from a heated dispute within Nexperia, a major semiconductor firm whose operations span Europe and China. Nexperia, majority owned by Chinese company Wingtech, is a crucial supplier, responsible for approximately two-fifths of the transistors and diodes used in today’s cars. The chips themselves may be modest—often costing pence rather than pounds—but their ubiquity in printed circuit boards controlling everything from electric windows to dashboard controls is what makes this shortage so potentially devastating.

Tensions escalated when the Dutch government intervened, stripping Chinese leadership from Nexperia and taking direct control, citing national security considerations. The Chinese side responded by instructing its staff to ignore Dutch directives and restricting shipments of finished microchips to Europe. As a result, Nexperia announced an inability to guarantee deliveries, sparking crisis management ‘war rooms’ throughout the European car sector and urgent diplomatic efforts in The Hague and Beijing.

For manufacturers still reeling from the pandemic-era chip shortage and the global supply chain disarray it caused, this geopolitical disruption compounds existing challenges. Industry voices argue that the current shortage, unlike the pandemic-triggered one, is rooted in international politics rather than market dynamics. The impact is magnified by carmakers’ indirect purchasing: these chips are not bought directly by automotive companies but are embedded in components sourced from specialised suppliers, making supply chain vulnerabilities difficult to diagnose in advance.

Experts warn that if the standoff endures, production disruptions could intensify. Automotive firms are frantically searching for alternatives, but the unique nature of some components means entire circuit boards can be rendered unusable if a single Nexperia chip is missing. While companies have sought to diversify sources since the last crisis, and some have opted to stockpile buffer supplies, replacing Chinese-supplied elements would erode efficiencies and likely push up prices for vehicles globally.

The Dutch government’s drastic measures reportedly followed security warnings from the United States, with the Hague invoking legacy laws designed to safeguard European technology. While diplomatic manoeuvres are ongoing, China’s commerce ministry has condemned the Dutch action as destabilising for worldwide supply chains. For now, Europe’s automotive sector faces a stark reminder: the intersection of geopolitics and microelectronics is set to be a defining battleground shaping the future of the industry.