The widespread automobile chip shortage impacting the global vehicle industry has been exacerbated since early 2021.
On February 21, Volkswagen (VW) announced its largest production plant in Wolfsburg, Germany was short of chips for 93,000 units of its Golf series. Since late 2020, leading auto manufacturers including Ford, General Motors, Mercedes Benz, Nissan and Porsche have faced similar shortages, forcing them to cut production.
American-British data provider IHS Markit predicted that the semiconductor chip shortfall would impact nearly one million units of light vehicle production globally in the first quarter of 2021. The shortage could lead to more than US$61 billion in lost revenue for the year, according to advisory firm AlixPartners.
As the largest auto market in the world, China has been hit hard by the chip crisis. Statistics from the China Association of Automobile Manufacturers (CAAM) showed that auto sales in China in January 2021 dropped by 15.9 percent compared to the previous month. Meanwhile, auto production dropped in the same period due to chip shortages.
On February 9, the Ministry of Industry and Information Technology met with major chip producers, recommending they pay more attention to the Chinese market, increase production, improve distribution efficiency and strengthen coordination with both upstream and downstream enterprises to address the supply issues.
“The auto chip shortage is a global problem that will continue in the first quarter of this year. It is unlikely to ease until the third or fourth quarter,” Xu Haidong, deputy chief engineer of CAAM, told NewsChina. “It will probably take three to five years for domestic chips to replace overseas products.”
Auto chips have three application categories. The first and most complex is autonomous driving systems, engines and body control modules for functions like power windows and air conditioning. Power conversion modules for interfaces in electric or hybrid vehicles come second, while the last is for sensors in parking guidance radar, airbags and tire pressure monitoring.
The current shortage is of the first category, particularly chips used in electronic stability control systems which detect skidding and improve overall handling.
The raging Covid-19 pandemic left the global auto market reeling in the first half of 2020, with automakers substantially reducing orders from chip manufacturers. Many leading chip suppliers cut production or shut down factories to cut expenses.
At the same time, social distancing has made demand for digital devices such as smartphones and tablets surge. Some auto chip manufacturers switched focus to consumer electronics chips, further reducing production.
“Consumer electronics chips have relatively low production thresholds and generate more revenue. Growth in consumer electronics chips means less auto chips,” Xu said. “It’s one of the main reasons behind the current auto chip shortage.”
The global auto market recovered somewhat in the second half of 2020, particularly the Chinese market, which pushed demand for auto chips. In addition, as the auto industry became more automated and internet-oriented, the growth rate of auto chips outweighed that of auto sales, creating an oversupply.
“After the change in supply and demand, chip companies had to switch their production lines again,” Xu said. “It’s easy for a production line to change from auto chips to consumer electronics chips, but difficult to switch back because [auto chip production] requires more time and technology.”
Natural disasters in early 2021 factored in. On February 13, an earthquake hit Fukushima, Japan, causing Renesas Electronics, the third-largest player in the global auto chips market, to suspend production. On February 16, a major storm caused massive blackouts in the US state of Texas, leading to factory shutdowns of auto chip manufacturing giants including Samsung, NXP and Infineon.
Xu said that work resumption does not necessarily mean production resumption. “Auto chip production requires high precision. Temperature and data readjustments on assembly lines are crucial before production resumes,” he said.
“The short supply of 8-inch wafer (a common chip in lower-end electronics) capacity turned out to be the main reason behind the auto chip shortage,” Chen Wenling, chief economist at the China Center for International Economic Exchanges, told NewsChina. “Mid- and high-end vehicles are most likely to be impacted.”
After many automobile manufacturers shut assembly lines, attitudes toward chip providers changed. VW announced that it is considering seeking compensation from chip makers Bosch and Continental because they are unable to provide enough.
NewsChina reporters learned from VW China that since December 2020, the short supply of chips has impacted local production. Without the chips required for Bosch’s ESP (electronic stability program) used in VW cars, the automaker had to cut production by 15,000 vehicles. VW is expecting the chip shortage to continue in the first half of 2021 and is working with chip suppliers across the globe to mitigate the crisis, the company said.
Ondrej Burkacky, a partner with McKinsey & Company based in its Munich office, told NewsChina that the automotive industry has become accustomed to a dedicated supply chain and seems to ignore that semiconductor chip manufacturers have other options.
An auto chip supplier told the reporter on condition of anonymity that as profit margins for auto chips are generally lower, chip manufacturers are less willing to invest in the area.
“If we produce auto chips in large quantities, chip manufacturers are sure to suffer losses if automobile enterprises slash production,” he said.
Since the end of 2020, major players such as UMC, Renesas Electronics, NXP Semiconductors, STMicroelectronics and Taiwan Semiconductor Manufacturing Company (TSMC) have announced increases of auto chip prices by 10 to 20 percent.
What’s more, chip manufacturers have significantly extended the delivery cycle. IHS Markit estimated that the delivery period of auto chips extended from 13 to 26 weeks, impacting the production of over one million vehicles.
China has been heavily dependent on overseas manufacturers for auto chips. According to IHS Markit, the market for global auto semiconductors was roughly US$41 billion last year and is expected to reach US$65 billion in 2021. European, US and Japanese chip companies account for 37 percent, 30 percent and 25 percent of global market share. To date, Chinese chip companies account for only 3 percent of the auto chip market.
According to statistics from the China Automotive Chip Industry Innovation Strategic Alliance, the independent R&D rate of auto chips in China was only 10 percent in 2019 and over 90 percent had to be imported. The Chinese auto chip market is monopolized by overseas manufacturers.
“The chip plight will not be addressed with a single action,” Yuan Chengyin, general manager of the China Automotive Chip Industry Innovation Strategic Alliance, told NewsChina. “The auto chip shortage in China will likely linger for 10 years.”
In September 2020, China’s Ministry of Science and Technology, the Ministry of Industry and Information Sciences and the National New Energy Vehicle Technology Innovation Center allied to boost homegrown innovation in auto chips.
In November 2020, the State Council, China’s cabinet, released the New Energy Vehicle Industry Development Plan (2021-2035), aiming to support the development and innovation of automobile control systems, computing platforms, autonomous driving and auto chips.
Horizon Robotics, a Beijing-headquartered designer and developer of artificial intelligence chips, has recently gathered an aggregate of US$350 million in its Series C3 round of financing from investors including auto makers BYD, Great Wall Motors, Changjiang Automobile Electric and tech company Huawei. Meanwhile, BYD and Huawei have been developing auto chips. SAIC Motor, SAICGE and Wuling Motors pledged to increase the percentage of domestic chips in their vehicles.
“China’s current technologies are not strong enough to replace overseas auto chips with domestic ones,” Xu said. “Chip manufacturers are working hard on R&D, but it will take continuous investment for domestic auto chips to eventually gain prominence.”
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