by Laura Reggiani |
We asked analysts at IHS Markit to shed light on the current chip shortage issue, which is undermining productivity in the automotive sector.
Can Integrated Device Manufacturers (IDMs) bring back some in-house manufacturing?
Idm's will probably not announce plans to build new lines any time soon. However, those that have yet to outsource 100% of their production to smelters and have maintained limited internal capacity may expand their existing line. However, this could take six to nine months. Therefore, if suppliers started in late 2020, any significant effect of these measures will not be seen until the third quarter of 2021. Indeed, there are significant hurdles in restarting lines or adding new capacity, and automotive manufacturing requires lengthy qualification of any new processes. The prospect of bringing capacity back in-house to solve a short-term crisis and then perhaps finding yourself with excess capacity certainly doesn't hold much appeal.
Can new production facilities be built?
Any new fabs will take years to operate. In January, Tsmc responded to the crisis by promising $28 billion in investment to alleviate the problem, including a new factory in North America, but that won't be operational until 2024. Most of the investment, which will then be focused on state-of-the-art nodes, partly reflects Intel's intention to outsource some of its manufacturing to Tsmc in the future.
Can political pressure help reduce problems for the automotive sector?
On 24 January, the German, US and Japanese governments called on Tsmc to address the automotive chip shortage. IHS Markit believes that any impact of this initiative will be limited, as foundry manufacturers focus on where the greatest demand is concentrated and automotive at the moment
is not the main driver of demand. However, Western governments have recognised the importance of reducing their industries' dependence on Asian semiconductor suppliers and are working on plans that could address this in the medium term. For example, the German Ministry of Economy and Energy has announced its intention to invest over €500 million in research, development and implementation of new technologies in microelectronics in Germany. A project, approved by the EU Commission and involving 29 companies from France, Germany, Italy and the UK, should then support the creation of high-performance chip factories. However, as already mentioned, this will take years and cannot be considered an answer to the current shortage, although it is a sign of awareness of the issue at government level.
Will this result in price increases?
OEMs can expect chip prices to rise in the coming months due to the imbalance between supply and demand. Price increases in the range of 10-15% are plausible; however, this impact will be more limited than the cost of keeping a vehicle production line shut down.
What else can be done?
Collaboration between the Oems and the semiconductor supply chain will be needed in the coming quarters to manage this. Collaboration will enable all OEMs and Tier 1 suppliers to get the necessary supplies of Mcu's; the challenge will be to direct the Mcu's to the places where the OEMs can build the models they want, as they will not be able to build just everything they want.
What will be the long-term effects?
This situation will certainly increase the awareness of OEMs, Tier 1 suppliers and DMIs and will lead them to review their outsourced production activities and relationships with their customers.
suppliers and IDMs and will lead them to review their outsourced production activities and relations with
foundries with a view to reducing their dependence. Chip shortages, the Covid-19 pandemic and other events over the past decade will help raise awareness about the importance of supply chain risk monitoring and management.
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