The automotive chip shortage is expected to ease in the second half of the year: How to solve the long-term supply security problem?

The impact of chip shortage on the automotive industry continues. On automotive forums such as Autohome and Autohome, the topic of "delayed delivery of new cars caused by tight supply" has become a hot topic for consumers for many popular models. OEMs are also trying to cope with it by adjusting inventory, squatting on suppliers, and other means.

Since the fourth quarter of last year, all industries around the world have faced a shortage of semiconductor supply, especially in the automotive industry. The industry generally believes that the current automotive chip shortage is due to the mismatch between automotive industry demand and the semiconductor industry cycle. In early 2020, due to the impact of the epidemic, the automotive industry had low market expectations and took the initiative to reduce semiconductor orders, causing part of the semiconductor industry's production capacity to shift to consumer electronics. As a result, when the global market recovered at the end of the year, the semiconductor industry found it difficult to switch production capacity and restore product supply. In addition, the spread of the global epidemic, fires, earthquakes and other factors have further restricted the production capacity of the semiconductor industry.

At the 11th China Automotive Forum held from June 17 to 19, the "chip shortage" also became a focus of discussion within the industry. However, it is worth noting that the discussion on the shortage of automotive chips is no longer limited to how to solve this wave of crisis, but is more concerned with coping with the long-term security and stability of the automotive semiconductor supply chain, and how to launch a more appropriate Chinese solution as the chip supply increases due to the development of intelligent connected vehicles.

"The shortage of automotive semiconductors is a common problem worldwide. It also reflects the deep-seated problem of mismatch between supply and demand in my country's automotive and semiconductor industries. The current automotive 'chip shortage' has also made the industry fully aware of the importance of a secure and stable automotive semiconductor supply chain." On June 19, Dong Xiaoping, deputy director of the Ministry of Industry and Information Technology's Electronic Information Department, said at the China Automotive Forum.

Since the fourth quarter of last year, all industries around the world have faced a shortage of semiconductor supply, especially the automotive industry - Visual China

The higher the level of intelligence, the greater the impact

On June 17, the "Global Automotive Market Outlook 2021" report released by consulting research firm AlixPartners showed that the chip shortage problem continues to affect the automotive industry. It predicts that the semiconductor shortage this year will reduce global net automobile production by 3.9 million vehicles, with losses of US$110 billion. It is expected that the chip shortage problem will be alleviated in the fourth quarter of this year.

The China Association of Automobile Manufacturers' forecast is relatively optimistic, believing that the impact of chip supply on China's auto market is expected to be offset in the second half of the year.

"The shortage of automotive chips will reach its peak in the second quarter. We optimistically expect the shortage of automotive chips to begin to ease in the second half of the year, and the impact for the whole year is expected to be offset. By mid-2022, the supply of automotive chips is expected to return to normal." Ye Shengji, chief engineer and deputy secretary-general of the China Association of Automobile Manufacturers, said.

However, from the actual situation, in recent months, dealer inventories have remained at a low level. In order to ensure operating profits, dealer preferential activities and manufacturer promotion policies have been adjusted, which may have a certain impact on car sales.

"Under the current environment, there should be no factory that will not be affected (by chip problems), but the degree is related to the intelligence (level) of the car. The higher the degree of intelligence, the greater the degree of impact on the chip may be. We are also working hard to find a solution." On June 19, Lin Jie, general manager of Lynk & Co Automobile Sales Co., Ltd., said in an interview with a reporter from 21st Century Business Herald.

At the same time, the prices of automotive chips are also rising.

"Not only is there a shortage of chips now, the shortage has caused everyone to scramble to buy them. At the same time, the price of chips is also rising. The original price of a chip of more than 20 yuan has risen to more than 1,000 yuan. This will put pressure on car companies and will also have a certain impact on the automobile market." On June 18, Shi Jianhua, deputy secretary-general of the China Association of Automobile Manufacturers, said in an interview with a reporter from 21st Century Business Herald.

Although the industry generally believes that this round of "chip shortage" will be alleviated before the end of the year, there are also views that this impact will continue.

"The Western world, led by the United States, continues to suppress our high-tech sector, disrupting decades of supply chain order. In addition, our digital economy is growing very fast. Therefore, we must be mentally prepared for the current situation of the 'chip shortage' and how long it may last." Feng Yanchun, chairman of the Independent Innovation and Security Technology Committee of the China Electronic Commerce Association, said.

According to Yuan Chengyin, general manager of the National New Energy Vehicle Technology Innovation Center and secretary-general of the China Automotive Chip Industry Innovation Strategic Alliance, if the industry maintains global supply, the chip shortage problem can be solved within a year. However, considering factors such as future regional competition and international confrontation, it may become a long-term problem.

The Ministry of Industry and Information Technology will guide enterprises to increase research on automotive semiconductors

Ye Shengji said that in 2019, the global semiconductor market size was US$412.3 billion, of which global automotive semiconductors were US$41 billion, accounting for about 10% of the semiconductor market size. It is expected that the automotive semiconductor market size will reach US$65.1 billion in 2022, accounting for 12%, and will become the fastest growing part of the semiconductor segment.

However, it should be pointed out that my country's self-sufficiency rate for automotive chips is less than 5%. Overall, the domestic automotive industry relies on large international parts groups, especially the core parts technology, electrical architecture, and supply system in the semiconductor field. For the long-term security of the industrial chain, there are huge potential risks.

Dong Xiaoping, deputy director of the Ministry of Industry and Information Technology's Electronic Information Department, said that overall, domestic semiconductor companies have problems such as a lack of deep understanding of automotive market demand, insufficient technological accumulation, insufficient product development experience, poor application promotion, and poor supply capabilities.

It is difficult for local chip companies to produce low-cost, high-volume, highly stable and consistent chips, which has led to a widening gap between China's chip industry and leading foreign companies.

It is worth noting that it takes a long time for automotive chips to go from development to entering the supply chain system.

"The process of matching with automotive electronics, reliability certification, and on-vehicle experiments has increased from 2-3 years for traditional chip development to 5-6 years for automotive industry application, so this is an industry with strong binding and a long industrial chain. In this process, close cooperation, mutual trust and mutual recognition between upstream and downstream are required," said Hara Makoto.

The consensus in the industry is that solving the supply of automotive chips requires close cooperation between the automotive industry and the electronic information industry.

"At present, the development focus of the domestic semiconductor industry is not in the automotive field. The economic efficiency of automotive chips is not very good, the cost is still high, the cycle is long, and the entry conditions are high. The requirements of vehicle manufacturers in the automotive industry are indeed high for the supply of parts. If there is any problem, they will demand compensation or a reduction in the purchase price. The automotive industry also needs to reflect on the current situation." Ye Shengji said.

Ye Shengji believes that in order to vigorously promote chip companies to jointly innovate and develop with automobile companies, OEMs also need to actively create a good industrial chain ecology. Complete vehicle manufacturers and electronic system suppliers should take the responsibility of cultivating the upstream. Automobile, chip and component design companies, foundries, equipment manufacturers, and raw material factories should gradually cultivate and form a good ecological environment for the industrial chain to promote the development of the automotive semiconductor industry. At the same time, automakers also need to improve and strengthen the supply chain management of chip products.

He also suggested that relevant departments include automotive chips in major technology development projects to solve the problem that vehicle manufacturers dare not use them. He believes that chips are currently facing problems such as reliability and performance stability. Vehicle manufacturers should recognize this from a strategic perspective. Vehicle manufacturers should dare to use independent chips, give chip companies opportunities to cultivate, and form national chip companies.