by Laura Reggiani |
The crisis due to semiconductor shortages hit the automotive industry at a time when the sector was beginning to see a moderate recovery in production levels after the slowdown caused by the pandemic.
The increase in chip demand from the automotive industry started just as the supply chain was already struggling due to significant semiconductor demand from the consumer sector, for 5G phones and infrastructure, new gaming platforms and IT equipment. There are no easy solutions; increasing semiconductor capacity takes a lot of time, but more importantly, a lot of money, which is why leading analysts predict the shortage could last until the third quarter of 2021, when the reallocation of foundry capacity and, perhaps, some cooling of consumer electronics demand should bring more certainty across the supply chain.
Although major semiconductor suppliers such as Tsmc e Umchave already announced significant investment plans to increase their production capacities, these efforts will not bear fruit in the short term and will force automotive OEMs to review their semiconductor procurement strategies. In fact, the crisis has highlighted that the traditional short-term supply cycle pursued by automotive companies may no longer be in line with the production cycles and rhythms imposed by the consumer on chip manufacturers.
IHS Markitwhich has analyzed the chip situation since April 2020, expects the entire supply chain to make changes in inventory management approaches to be better prepared in the future: "The cause of this problematic situation is the result of increasing OEM demand and limited semiconductor supply, and it will not be resolved until both forces are aligned. If the cause were a natural disaster, the supply chain would respond with appropriate recovery plans, but here we are talking about balancing supply and demand and lead times that for microcontrollers are as long as 26 weeks. So we can't expect any changes until the second half of the year," said Phil Amsrud. IHS Markit also estimated that nearly 1 million fewer light vehicles will be produced in the first quarter of 2021, precisely because of supply chain disruptions. Audi, for example, recently laid off 10,000 workers and announced delays on some models; Volkswagen had to reduce production at its Wolfsburg and Emden plants "due to a lack of microchips"; Ford suspended production of the Focus for a month; and Honda, Renault, Toyota and Mazda also recently made similar announcements.
Tsmc addiction
Most of the disruptions in vehicle production are attributable to the shortage of MCUs. In fact, microcontrollers are ubiquitous in vehicles today and are required in all electronic control units in cars. They are used in all areas of the vehicle, from braking systems to window control; an average vehicle contains more than 20 MCUs (a Chevy Equinox has 27 and an Audi Q7 up to 38).
Multiple suppliers are used for each Mcu, appointed on the basis of a 'straight purchasing scheme', whereby the OEM tells the Tier 1 supplier which Tier 2 and Tier 3 supplier to use. Each vehicle therefore relies on more than one MCU supplier. It should also be noted that microcontrollers, being proprietary architectures, do not easily allow a "second source" from another supplier. The microcontroller shortage will therefore heavily affect the work of Tier1s such as Bosch, Continental and Denso, who each produce at least 30 different ECUs for different automotive needs, and who have already confirmed the shortage of these devices.
Moreover, the seven main suppliers of MCUs account for about 98% of demand and only a few of them, with STMicroelectronics in the forefront, maintain a high level of vertical integration; all the others are instead strictly dependent on foundries and in particular on the Taiwanese Tsmc. This dependence on Tsmc has been built over time, as many chipmakers have pursued a "fab-light" strategy over the years. Tsmc, which currently has come to produce about 70% of all chips sold to the automotive sector, for its part already in 2020 had announced some limitation of production capacity, also motivated by the fact that the automotive contributes only 3% of the total revenue of Tsmc.
All this has had a considerable impact on delivery times: for a McU that usually takes 12 or at most 16 weeks from production to delivery, we now have to wait up to 38 weeks. The pandemic has in fact only highlighted the fragility of an ecosystem in which there are many other dynamics at play. Fortunately, the market is seeing limited instances of double or triple orders from OEMs, which means that the supply chain can be relatively confident about demand data. However, this does not change the fundamental problem that automotive demand is outpacing Mcu supply.
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