Auto makers rally for prolonged chip shortage


The global chip shortage has ravaged the auto industry this year, slashing factory output of several million vehicles and wiping out billions in revenue for automakers.

Next year should be almost as difficult, according to industry analysts.

Auto executives have expressed optimism for months that the problem will start to ease by the end of the year. Today, there is an emerging view that the chip shortage has grown from a short-term crisis to a structural upheaval for the automotive supply chain that could take years to be completely overcome.

The number of semiconductors in a car today, from the ignition to the braking system, can exceed 1,000. As the global chip shortage continues, automakers from General Motors to Tesla find themselves forced to adjust their production and rethink the entire supply chain. Illustration / video: Sharon Shi

New bottlenecks in the way semiconductors are tested and packaged in Asia are further disrupting the supply of chips to automakers. Meanwhile, semiconductor makers are phasing out low-tech, low-margin chips that are prevalent in new vehicles, raising concerns about the availability of these chips further.

Automakers face a two-pronged challenge: finding the chips they need to run their factories today, while planning to secure a longer-term supply, which includes more semiconductor manufacturing. based in the United States.

“At the end of the day, if we don’t make feature-rich chips that only the auto industry uses, all of our jobs are at risk,” Jim Farley, Ford Motor Co.

, said in an interview.

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Some automakers are already redesigning their 2022 plans.

Peter Anthony, general manager of a Chicago-area supplier, recently cut his volume forecast for the first half of next year by 20%. That estimate is an educated guess, however, as its customers’ orders change daily based on chip availability, he said.

“Nobody knows that,” said Mr. Anthony, whose interior mats and insulation UGN Automotive manufactures for several Japanese automakers. “It’s a total roll of the dice.”

The latest indication that the chip shortage challenges are not over is expected to arrive on Friday, when major automakers release their sales in the United States in the third quarter. Analysts expect sales to drop sharply in the third quarter after a strong spring as a semiconductor shortage slows vehicle production and leaves dealerships with little or no inventory.

The auto industry’s lingering problems date back to the early days of the pandemic, when auto suppliers canceled chip orders over concerns over weak demand, analysts and industry executives say. . Consumer electronics companies have absorbed much of this capacity, leaving automakers and their parts suppliers with a shortage of chips when car sales resumed in the summer of 2020.

Several setbacks have further reduced the availability of chips, used in everything from anti-lock brakes to multimedia displays. Power outages, a fire at a major semiconductor maker, and other disasters disrupted chip production from Texas to Germany and Japan.

Today, the industry faces bottlenecks further down the supply chain. Semiconductors made by major manufacturers, such as Taiwan Semiconductor Manufacturing Co.

, are sent to companies for assembly and testing in Malaysia and other countries in Southeast Asia. These companies have recently been hit by production disruptions due in part to restrictions related to the pandemic and increasing outbreaks of Covid-19.

This part of the supply chain is expected to experience a prolonged backlog for chips used by the automotive industry as well as other sectors, even as pandemic restrictions relax, said Phil Amsrud, senior analyst at research firm IHS Markit specializing in the automotive industry. semiconductor market.

“These back-end companies operate with much thinner margins” than semiconductor manufacturers, Mr. Amsrud said. “In order for them to make a big investment in capacity, they have to be absolutely sure about demand in the short and long term.”

Even for companies looking to increase capacity, delivery times for some manufacturing equipment needed to increase production can stretch up to nine months, he said.

This delay is the main reason IHS recently lowered its forecast for global vehicle production in 2022, reducing it by around 8.5 million vehicles from its previous forecast, to a total of 82.6 million. Company attributes this year’s production losses to supply chain disruptions, primarily chip shortages, at around 10.6 million vehicles

Consulting firm AlixPartners LLP estimates the chip shortage will cost the industry $ 210 billion in revenue this year, nearly double its May forecast.

One factor that leaves the automotive industry at a potential disadvantage is its reliance on older chips, called microcontrollers. They have been used for decades to electronically control engines, air bags and other vehicle functions, and are ubiquitous due to their low cost and reliability.

But of the nearly $ 400 billion announced by semiconductor companies as part of planned capacity expansions, a small portion is expected to be spent on microprocessors, according to IHS.

Semiconductor companies have no incentive to invest in additional capacity for older technologies, said Joseph Spak, analyst at RBC Capital. And while automakers turn to more advanced chips as they introduce electric and connected cars, this upgrade will put them in more direct competition for chips with consumer electronics makers, he said. -he declares.

“We believe there could be structural reasons why semi-capacity could limit auto production in the next few years,” Spak said.

The severity of the shortage has affected automakers unevenly. For example, Ford lost more production in North America than any global automaker – about 566,000 vehicles, according to research firm AutoForecast Solutions. But Ford executives have said the situation is improving.

Ford’s Mr Farley said the company’s short-term tactics include securing back-up stocks of chips and signing direct contracts with semiconductor companies, rather than relying on direct suppliers. from Ford. He also proposed to design some vehicle components to require fewer chips.

Meanwhile, General Motors Co.

for much of the year had managed to avoid cutting back on production of its most profitable vehicles, large pickup trucks and SUVs. More recently, however, it canceled shifts at its truck factories, which should weigh on third-quarter profits.

GM chief executive Mary Barra said in September that the automaker was working directly with semiconductor makers to secure the chips.

“We’re going to make some pretty big changes in our supply chain,” Ms. Barra said in an online interview hosted by Delta Air Lines Inc. CEO Ed Bastian. “It’s a solvable problem, but it’s going to be there a little longer.”

Write to Mike Colias at [email protected]

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