What happens when automotive chips are out of stock?

Latest update time：2021-02-08

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The auto market experienced a dazzling recovery in the second half of last year, but it came at a high price. The rebound has caused a global shortage of auto chips, and there have been reports of auto companies closing factories, suspending operations, idling factories, and seeking chips at high prices. In the face of chips, even the most powerful auto groups seem so vulnerable, and many auto industry executives are seeking government help to speed up the recovery of chip supply. This is a chip shortage disaster that has affected the global auto industry. The storm started suddenly, but it is slow to subside.

IHS Markit said on February 3 that the chip shortage is expected to cause global automotive production to drop by 672,000 vehicles from the first quarter. The forecasting company expects the shortage to continue into the third quarter. AutoForecast Solutions, which tracks auto production, said that due to the shortage, so far, 564,000 vehicles have been announced to be stopped worldwide, and the total impact this year is estimated to be 964,000 vehicles. According to IHS, China will be the country most affected by the shortage, with nearly 250,000 vehicles affected in the first quarter.

Car companies "suffering terribly"

The automotive industry is actually only a small part, accounting for about one-tenth of the global semiconductor wafer fab output. Therefore, the bottleneck is expected to last for several months. For a time, many automakers adjusted their expectations, reduced production, and even shut down some product lines.

The situation of Japanese automobile companies is as follows:

Honda Motor

Honda was one of the first global automakers to warn of chip shortages, and Nikkei reported that it would initially reduce production by about 4,000 vehicles in January. The change will mainly affect the Fit subcompact car produced at a plant in the town of Suzuki, Mie Prefecture, Japan.

Honda announced a two-day production halt at its UK plants on January 5 and 6. The Swindon plant, founded in 1985 to produce the Civic hatchback, said it would reduce production of the Accord, Civic and Insight sedans, as well as the Odyssey crossover SUV minivan and the Acura RDX. Honda will adjust production at its Marysville and East Liberty plants in Ohio, as well as plants in Alabama, Indiana and Canada.

There are warnings that cuts later in the year could be even deeper. "The period starting in February is likely to be severe," said one person familiar with the matter. The source added that shortages could "affect tens of thousands of vehicles in the January-March quarter alone on the domestic side of Japan."

Honda is apparently short of semiconductors for vehicle control systems. Since the process of sourcing materials and turning them into semiconductors takes more than three months, quickly adjusting production volume according to demand is a difficult task.

Subaru

Japanese automaker Subaru Corp said on January 14 that it would cut production of "thousands" of vehicles in Japan and the United States in January. A Subaru spokesman said Subaru will adjust production and reduce output at its Gunma plant in Japan. The company did not specify how many vehicles it would produce. The spokesman said Subaru will also reduce production at its Indiana plant.

According to Reuters on February 5, Subaru said on Friday that it has cut its production plan for this fiscal year by about 48,000 vehicles due to the global chip shortage. Subaru Chief Financial Officer Toshiaki Okada said that while automakers are certain that the impact of chip tightening will continue into the next fiscal year, it is not clear how many vehicles will be affected. He said in an earnings call that if automakers are unable to procure chips, they may also suspend or adjust factory operations in the future.

Toyota Automotive

Toyota Motor said on January 10 that it would cut production of its full-size pickup truck Tundra due to a global shortage of semiconductors. On the morning of January 15, Toyota said it would stop four production lines at three plants in Aichi Prefecture, Japan, due to a shortage of parts. The production lines will resume operations in the afternoon shift, a company spokesman said. Due to limited chip supply, the company expects to reduce production of its Tundra model manufactured in San Antonio by 40% this month.

In the Chinese market, Toyota Motor halted production lines at its Guangzhou plant on January 11 due to a shortage of parts. Toyota operates the plant jointly with Guangzhou Automobile Group Co., Ltd. In recent years, the plant has produced more than 300,000 vehicles a year, including the Camry.

Nissan

Nissan Motor said on January 8 that it will cut production at one of its plants in Japan this month. Spokeswoman Azusa Momose said: "The global shortage of semiconductors has affected parts procurement in the automotive sector. Due to this shortage, Japan's Oppama plant will adjust production in January and reduce the production of Nissan Note."

Nissan will cut production of its compact Note hatchback by about 8,000 units in January, part of a total output cut that could exceed 10,000 units and last until March, the Nikkan Kogyo newspaper reported on Jan. 15. Nissan also reduced work hours at its truck plant in Mississippi.

Mazda

Hiroshima Prefecture-based Mazda is the latest automaker to be hit by a shortage of semiconductors. According to a Reuters report on February 3, Mazda is considering cutting global production by 34,000 vehicles in February and March. On February 4, it said it expected the chip shortage to affect its car production starting this month. Mazda Chief Executive Akira Marumoto said in an earnings call that Mazda will revise its production plan based on current assumptions, so its global production in February will be 7,000 units less than originally planned.

Models affected by the production cuts include the CX-5 and CX-30 SUVs and the Mazda 3 sedan due to a shortage of chips used in braking systems and safety components. Mazda plans to reduce domestic production of the CX-5 by 3,900 units in February and is considering reducing production of the SUV by about 6,000 units in March.

The manufacturer is also considering cutting production of the Mazda 3 and CX-30 in Japan, China and Mexico. "We expect (global) production to be affected in February," a Mazda spokesman said. "We will continue to do our utmost to minimize the impact."

Mazda said on the same day that it now expects its net loss to shrink to 50 billion yen ($475 million) this fiscal year from its previous forecast of a 90 billion yen loss, as cost-cutting efforts have paid off and sales of higher-margin models continue to grow.

American Motors:

Ford

Ford is cutting production of its F-150 pickup trucks at plants in Michigan and Missouri due to a global shortage of semiconductor chips. The reduction in F-150 production highlights the potential severity of the chip shortage, as the F-150 is the best-selling vehicle in the United States and Ford's biggest moneymaker. Its chief financial officer, John Lawler, said Ford has been working to shift semiconductor production to high-margin product lines, but some of its chips are unique to the F-150. Ford executives warned during a discussion of fourth-quarter earnings that losses in global vehicle production in the first and second quarters of this year could reduce its pre-tax profits this year by $1 billion to $2.5 billion.

Ford said on February 4 that starting Monday, its Dearborn Truck Plant in Michigan will reduce production to one shift from three weeks, while its Kansas City Assembly Plant in Missouri will reduce truck production to two shifts from three weeks. Ford spokeswoman Kelli Felker said both plants are expected to resume three shifts the week of February 15.

General Motors

General Motors (GM) is the latest automaker to feel the effects of the global semiconductor chip shortage. GM said it will completely cut production at three of its North American plants starting the week of February 8. In addition, the automaker said on February 3 that it will reduce production in half at its Bupyeong 2 plant in South Korea. GM did not disclose how many units it will lose, or which supplier was affected by the chip shortage. But GM said the focus has been on getting plants that make the highest-profit vehicles (full-size pickup trucks and SUVs and the Chevrolet Corvette sports car) back online. GM said it intends to make up for lost production as much as possible.

AutoForecast Solutions, which tracks production, estimates that GM's total losses next week will reach nearly 10,000 vehicles. The affected GM vehicles include the Chevrolet Malibu sedan, Cadillac XT4 SUV, Chevrolet Equinox and Trax, GMC Terrain SUV and Buick Encore small crossover. GM said its focus is on keeping its most profitable products, such as the Silverado and Corvette, running at full speed.

"Despite mitigation efforts, the semiconductor shortage will impact GM production in 2021," GM spokesman David Barnas said in a statement to Reuters.

Fiat Chrysler

Fiat Chrysler said it will delay resuming production after a planned shutdown at its Toluca, Mexico, plant that builds the Jeep Compass. It also plans downtime at its Canadian plant in Ontario, which makes the Chrysler 300, Dodge Charger and Dodge Challenger.

"This will minimize the impact of the current semiconductor shortage while ensuring we maintain production at our other sites in North America," the company, which is due to merge with PSA Group (PUGOY) this month, said in a statement.

The situation of Korean automobile companies is as follows:

public

"The automotive chip shortage was already affecting us in December, and we have lost about 10,000 cars since then, just because we lost 50,000 cars in December because of certain chips," Stephan Wollenstein, head of Volkswagen China, said at an online media conference on Wednesday.

China is a crucial market for the world's largest automakers, with Volkswagen's massive business in China accounting for about 40 percent of global vehicle deliveries and hugely profitable.

Wollenstein said the chip shortage mainly affects models that use the company's electronic stability system. The system is a sensor system that works with the car's anti-lock brakes to prevent the wheels from failing after an accidental turn. He said some other components may also be affected but did not provide further details. The changes will affect production of the top-selling Volkswagen Golf and models from its Audi, Skoda and Seat brands.

The situation of European car companies is as follows:

Audi

Audi head Markus Duesmann told the Financial Times that Volkswagen Group's luxury car brand Audi has furloughed more than 10,000 workers as the chip shortage slowed production lines. Audi is arranging short-term work for workers at its plants in Ingolstadt and Neckarsulm until January 29, and production of the A4 and A5 models will be affected.

Daimler

German car brand Daimler will cut production at a second plant and reduce its working hours, Handelsblatt reported on January 15, 2020, citing unnamed company sources. Daimler will reduce production in Bremen and may even close it for a few days in early February, the newspaper reported. Earlier, the company said it would reduce working hours at its compact car plant in Rastatt.

Mercedes-Benz's parent company Daimler is in the process of restructuring. In an effort to attract investors seeking a pure luxury automaker and electric vehicle business, the company will spin off its massive truck division, according to Reuters. Most of the shares in Daimler Trucks, the world's largest maker of commercial trucks and buses, will be divided up among Daimler's current shareholders. Overall, the move could allow Mercedes-Benz to position itself as a direct competitor to Tesla in the market, perhaps attracting investors as Tesla is valued higher than the 10 largest automakers combined. The new company will be called Mercedes-Benz, replacing the Daimler name, according to Automotive News.

Dacia

In February, the Dacia car plant in Mioveni, Romania, had already suspended production due to the global semiconductor crisis. Dacia is a brand under the Renault Group.

Is every car company affected?

The problem of automotive chip shortage has not affected the entire automotive industry equally. Some companies seem to have not felt it yet or have experienced very little impact. These include Tesla, Volkswagen, and BMW. Domestic companies such as BYD and NIO do not seem to be affected much.

Tesla has surpassed Toyota and Volkswagen to become the most valuable automaker during the pandemic, even though its sales are a fraction of those of the traditional giants. Tesla shares rose more than 100% in the second quarter, during which time Tesla's sales exceeded expectations as production at its Shanghai factory quickly increased, which was largely unaffected by the pandemic.

Tesla was the first company to announce a price increase after the chip shortage. Tesla founder and CEO Musk had previously urgently stated that the chip shortage may affect production and supply in the short term, and that the company is doing its best to overcome the difficulties of the chip shortage.

Tesla is a dominant player in the field of autonomous driving, which is the next technological frontier that is expected to unlock trillions of dollars in value and have one of the biggest social impacts since the iPhone. And according to Korean media reports, Tesla is working with Samsung Electronics to develop 5-nanometer semiconductors for fully autonomous vehicles. For Tesla, securing access to the new 5-nanometer AI chip would be a big step forward in its goal of introducing a wide range of autonomous electric vehicles.

While many automakers around the world have been forced to idle factories this year due to chip shortages, Hyundai said it has not been affected because it did not cancel any semiconductor orders even as the pandemic hurt sales and closed factories last year. In addition, Hyundai has designated 2021 as the "year of future transformation," with the company aiming to sell 160,000 electric vehicles in 2021, compared with 100,000 electric vehicles last year, thanks to strong demand for its Kona electric utility vehicle, even as the coronavirus pandemic has surged auto demand.

BMW said in January that it had not been affected by the chip shortage so far and production had not been interrupted, but it remained in close contact with suppliers. BMW pointed out that they had secured semiconductor inventory and would not be affected in the near future.

There will be an impact on production, but the automaker is still checking details, including which models may be affected, a Suzuki Motor Corp. spokesman said by phone on Jan. 12.

A spokesperson for Japan's Mitsubishi Motors also said on January 12 that although Mitsubishi Motors is still checking the impact on production, it is not forced to adjust production due to the chip shortage.

The "human life" after the shortage of automobile chips

As the auto market recovers rapidly, a global shortage of key semiconductors has caught global automakers off guard, raising a host of potential problems.

(1) First, let’s look at the concerns of automotive chip suppliers.

German chipmaker Infineon Technologies AG said on Thursday it faces challenges meeting demand for microcontrollers from the automotive industry due to capacity constraints at the contract manufacturers it relies on. However, Infineon said it is responding to growing demand for its own power chips and sensors and is building closer direct ties with automakers such as Volkswagen AG to better meet their needs.

"With lead times of six to nine months, the semiconductor industry is unable to scale up quickly enough to meet this unexpected increase in automotive demand," parts supplier Continental Technologies (CTTAF) said in a statement previously sent to CNN Business. The bottleneck is expected to continue into 2021, which will cause major disruptions to Continental's production.

Bosch, the world's largest auto parts supplier, said in a statement on Tuesday it was doing everything it could to keep customers supplied. "In this regard, we are in close contact with our suppliers and customers on a daily basis," it added.

Chipmaker Xilinx warned that the problem has expanded from semiconductor manufacturing to the supply of other materials and components. The CEO of Analog Devices also said that there is a shortage of automotive chips that will slow down the development of automakers.

In addition, supply exceeds demand, and chip shortages will inevitably lead to price increases. Netherlands-based chipmakers NXP and Japan's Renesas Electronics said they are seeking to raise prices due to shortages and rising raw material costs. People familiar with the matter said STMicroelectronics is also considering taking similar measures, but STMicroelectronics declined to comment.

(2) Secondly, this automobile chip shortage incident has once again sounded the alarm for "autonomy and control" for all countries.

"This incident of chip shortage once again shows how urgent and necessary it is to have an independent and controllable supply chain," said Chen Shihua, a senior official at the China Association of Automobile Manufacturers.

"We will not produce chips ourselves. But we certainly want to have strong chipmakers that are at least comparable to those in Asia and the United States," said Markus Duesmann, board member for research and development at Europe's largest carmaker Volkswagen and head of luxury unit Audi. "Ultimately, technology is crucial for the group's success," he said, adding that Europe should take the lead in future technologies such as software and chips.

To solve the chip supply shortage problem, Volkswagen bypassed long-term partners such as Bosch and Infineon, and placed orders directly with Taiwanese semiconductor companies, but Volkswagen did not disclose the Taiwanese companies it cooperated with. To avoid another crisis, Volkswagen said it is considering bypassing large suppliers and establishing closer relationships with chip manufacturers.

In terms of autonomy and control, it is reported that European countries are planning to support the production of local technology hardware, including processors and semiconductors, through IPCEI, and targeted assistance could lead to investments of up to 50 billion euros (60 billion U.S. dollars). However, the specific level of investment and who will invest have not yet been determined.

(3) Finally, will the shortage of automotive chips keep other chip sectors out of the question? It seems unlikely.

"Don't expect this problem to be limited to the automotive industry, either. The shortage is across the board," Qualcomm said. The ongoing shortage of automotive chips has a ripple effect across the industry. Samsung is reportedly concerned that problems in one area of the semiconductor market could spread to other areas.

According to the Financial Times, automakers have lobbied governments and chipmakers for help around the world due to insufficient chip capacity. TSMC has pledged to speed up orders to automakers, and other foundries around the world may make similar vows. Samsung is worried: "While our production capacity has been fully utilized by the needs of various industries, TSMC is reallocating our wafer capacity to support the global automotive industry."

Samsung is particularly worried that it won't be able to deliver new phones on time because foundry vendors will be busy making chips for other companies, including the automotive industry. A shortage of foundries could limit the number of devices available on the market, squeezing the smartphone industry. Samsung is particularly exposed in this situation: It is the world's largest smartphone maker, the largest DRAM maker, and the largest NAND maker.

Conclusion

No one can give a definite conclusion on how long the automotive chip shortage will last. This problem caused by multiple links in the industry will surely be solved one by one by them.

*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.

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