There are several signs that the shortage of semiconductors for automotive applications is easing. However, light vehicle production is likely to remain lower than expected until at least 2023.

LMC Automotive's July forecast for light vehicle production was for 81.7 million units in 2022, a 2% increase from 2021. LMC's January forecast was for 13% unit growth, 4 million units more than the current forecast. The July forecast called for production growth of 5% in 2023 and 7% in 2024. LMC's April forecast for 2023 and 2024 was 4 million units higher per year than its July forecast. Production in 2024 is 91.7 million units, but should still be below the pre-pandemic level of 94 million units five years ago in 2018.

The main reasons why automotive semiconductors are in short supply are:

• Automakers severely cut semiconductor orders at the start of the COVID-19 pandemic in early 2020. Auto companies fear being stuck with a glut of vehicle inventories if demand drops sharply due to the pandemic. As automakers tried to increase orders, they lost their place in the queue, lagging behind other industries such as personal computers and smartphones.

• Many automakers use just-in-time ordering systems to avoid excess inventory. This leaves them with little buffer stock. Additionally, most semiconductors used in cars are purchased by the companies that provide the systems (engine controls, dashboard electronics, etc.) rather than the automakers, making the supply chain more complex.

• Semiconductors used in automobiles have long design cycles and must be of a qualified standard. Therefore, it is difficult for automakers to switch suppliers in the short term.

• Semiconductors used in automotive applications use older process nodes than most other applications due to long design cycles and long product lifetimes. As shown in the table below, McKinsey estimates that by 2021, 72% of automotive semiconductor wafers will use 90nm or more mature process nodes, compared with 52% across all applications. Only 6% of automotive demand is for 14nm and less process nodes, compared with 21% for all applications. Semiconductor manufacturers are focusing capital expenditures on more advanced process nodes and only modestly expanding capacity on older nodes. Dominant wafer foundry TSMC generates 65% of its revenue from advanced process nodes and only 12% from 90nm or larger nodes. Only 5% of TSMC's revenue comes from automobiles, while smartphones account for 38%.

Given all the above factors, it will take time to resolve all supply issues. Recent comments from major automakers reveal mixed trends in addressing semiconductor shortages.

• Toyota – shortages until at least Q3 2022

  
  

• Volkswagen – Shortage eased

  
  

• Hyundai – Shortage Relief

  
  

• General Motors - Impact of shortages through 2023

  
  

• Stellantis – shortages until the second half of 2022

  
  

• Honda – Uncertain outlook due to shortages

  
  

• Nissan – Recovery in the coming months

  
  

• Ford - Shortages remain a problem

  
  

• Mercedes-Benz – No major supply issues

  
  

• BMW – no production delays due to shortages

  
  

• Volvo - ample supply restored

  
  

• Bosch (parts supplier) – shortage until 2023

The five largest automotive semiconductor suppliers also had mixed views on the prospect of shortages in their most recent second-quarter 2022 financial reports:

• Infineon Technologies – Gradually easing shortages in 2022

  
  

• NXP Semiconductors – Demand will still outpace supply in Q3 2022

  
  

• Renesas Electronics - Inventories returned to planned levels at the end of the second quarter of 2022.

  
  

• Texas Instruments – Inventories remain below expected levels

  
  

• STMicroelectronics – Capacity sold out by 2023

The shortage of automotive semiconductors is likely to last until at least 2023. While some automakers say they have returned to full production, most report shortages are continuing. The shortage will prevent automakers from producing enough vehicles to meet demand in 2022 and 2023, keeping prices high for most vehicles.

Automakers and semiconductor suppliers are working to prevent such severe shortages in the future. Automakers are adjusting their just-in-time inventory models. Automakers are also working more closely with semiconductor suppliers to communicate their short- and long-term needs. As trends in electric vehicles and driver-assist technologies continue, semiconductors will become even more important to automakers.

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