Automotive chip supply is in crisis again, and domestic substitution will take time

Recently, Malaysia, known as a major hub for automotive chip packaging and testing, has been hit again by the COVID-19 pandemic. According to the latest statistics, on August 23, Malaysia had 17,700 new confirmed cases. Although it has dropped from the previous few days, it is still in a critical state.

Under the influence of the epidemic, Malaysian chip companies are basically in a "paralyzed" state and forced to suspend work and production, which has further aggravated the "chip shortage" in the global automotive industry.

Public information shows that Malaysia is the world's seventh largest exporter of semiconductor products. Currently, there are more than 50 semiconductor factories in Malaysia, and the local packaging and testing capacity accounts for about 13% of the global packaging and testing capacity. The recurrence of the epidemic in Malaysia has led to Toyota, Volkswagen, Ford, General Motors and other auto giants recently announcing production cuts.

An insider of an auto company told the Securities Times reporter that the pressure from the upstream of the automotive chip supply chain has continued to be transmitted to the Chinese auto industry. The Malaysian epidemic has caused a further shortage of chips, which is worthy of the industry's vigilance. It is hoped that government departments and industry organizations will systematically evaluate the impact of this wave of epidemic on the Chinese auto industry, and through top-level design adjustments and communication, ensure the demand for chips of Chinese auto companies.

Many automakers announced production cuts

"Due to a new outbreak, the Muar factory in Malaysia of a semiconductor chip supplier has been asked to shut down its production line again after it was shut down a few weeks ago. Bosch's ESP/IPB, VCU, TCU and other chips will be directly affected and are expected to be basically out of supply in late August." A few days ago, a post on WeChat Moments by Xu Daquan, Executive Vice President of Bosch (China) Investment Co., Ltd., sparked heated discussions in the industry, directly pointing out the severe damage caused by the Malaysian epidemic to the automotive chip supply chain.

Public information shows that Malaysia is a major global center for semiconductor product packaging and testing. International semiconductor giants such as Intel, Infineon, STMicroelectronics, NXP, Texas Instruments, and ON Semiconductor have all built factories locally. Local packaging and testing capacity accounts for about 13% of the global packaging and testing capacity.

It is understood that chip packaging is part of the chip production process, which specifically refers to cutting, wire bonding, and plastic sealing of qualified wafers, and then adding a "shell" to provide physical protection for the chip and enable electrical connection between the chip circuit and external devices.

According to industry insiders, although the technical content of the chip packaging business is not high, due to the relatively complex chip production process, the division of labor among various companies has become very detailed, which makes Malaysia, with relatively low labor costs, have a more prominent advantage in the chip packaging field and a high market share.

In addition, chips produced by companies such as STMicroelectronics are also crucial to the automotive parts industry. A Securities Times reporter learned from an industry insider that STMicroelectronics' L9369-TR chip material, with automotive parts as the core, covers 7.5% of the overall demand of Chinese OEMs. Its shortage will affect the production of nearly 900,000 vehicles in China in August.

The above-mentioned person said that the impact of the epidemic in Malaysia should be taken seriously by the domestic automobile industry to avoid the chip shortage crisis being underestimated. Recently, Geely Auto responded to investors on the issue of chip shortage at the 2021 semi-annual report performance conference. Gan Jiayue, CEO of Geely Auto Group, said that the supply and demand of automotive chips in August will be difficult, and the impact of many uncertain factors is currently difficult to assess.

In this regard, the reporter contacted an insider of an industry organization, who said that the latest situation of the shortage of automotive chips is still unclear and it is not convenient to accept an interview.

Although industry-level research has not yet been revealed, several auto giants have recently announced plans to reduce production. On August 19, General Motors announced that it would extend the shutdown of several factories responsible for the production of crossover vehicles and sedans due to the global chip shortage. In addition, the company also plans to stop production at the factories responsible for the production of Chevrolet Bolt EV and Bolt EUV. It is worth noting that this is the first time that GM has suspended the production of electric vehicles since the outbreak of the chip crisis.

Toyota, which has always emphasized lean production, also recently announced that it will cut its global production by 40% in September. Due to the chip shortage, almost all of its factories in Japan will be affected, and 27 production lines will be interrupted. Production of global operations will also be affected, with factories in North America and China both delivering 80,000 fewer vehicles than expected, and production in Europe will be 40,000 fewer than originally planned.

In addition, Ford, Volkswagen, Hyundai and other automakers have recently announced plans to reduce production. According to statistics from Auto Forecast Solutions, as of August 9, the global automobile production loss due to chip shortages has reached 5.853 million vehicles, of which North America and Europe have suffered the largest losses, at 1.874 million and 1.746 million respectively, followed by China, at 1.122 million. According to the agency's forecast, the final global automobile production loss for the whole year may further rise to 7 million vehicles.

Tight supply and demand bring price increases

The tight supply and demand situation has caused the price of automotive chips to rise. It is reported that since the end of 2020, domestic and foreign semiconductor companies have successively issued price increase announcements, with the highest increase of about 15%. Public information shows that the current price of MCU chips has increased by at least 5 times compared with the same period in 2019.

Guojin Securities pointed out that the shortage and price increase of raw materials are also the reasons for the rise in chip prices. It is reported that the price of automotive chips in mainstream channels has increased by 5 to 10 times, while the price increase in non-mainstream channels is as high as 10 to 20 times.

Research firm Counterpoint predicts that the continued imbalance between supply and demand will cause chip quotations to rise by at least 10% to 20%. Some products of 8-inch foundries have already increased in price by 30% to 40% compared to the second half of 2020.

A person from an automobile manufacturer told the Securities Times reporter that the recurrence of the epidemic in Malaysia may further increase the overall price of automotive chips.

The reporter noticed that the State Administration for Market Regulation has recently paid attention to the price increase of automotive chips and will file a case against automotive chip dealers suspected of price gouging. At the same time, the State Administration for Market Regulation will continue to pay attention to the market price order of important commodities such as chips, further increase supervision and law enforcement, and severely investigate and punish illegal acts such as hoarding, price gouging, and collusion to raise prices.

New Era Securities pointed out that some companies have profited from driving up prices amid a global chip shortage, which has seriously disrupted the market order. After the country takes action to strengthen supervision, it is expected that the price of automotive chips will stabilize, the number of intermediate links may be reduced, and the upstream and downstream supply chains will be improved to a certain extent.

Domestic substitution will take at least 5 years

Although the epidemic in Malaysia has brought an impact on the global automotive chip industry, many industry insiders said that this will not have a significant impact on domestic automobile production and sales this year.

According to the weekly reports of 11 key automobile enterprises in the industry, the China Association of Automobile Manufacturers showed that in the first and middle weeks of August 2021, the 11 key enterprises completed automobile production of 707,000 vehicles, a year-on-year decrease of 34.3%. Among them, passenger car production decreased by 28.9% year-on-year; commercial vehicle production decreased by 44.1% year-on-year.

"At present, judging from the statistical data of each month, the shortage of automotive chips does have a direct impact on automobile production, but in the long run, the production scheduling of the automobile industry has a certain degree of flexibility and will not have a major impact on the production and sales for the whole year." Dong Yang, co-chairman of the China Automotive Chip Industry Innovation Strategic Alliance, told a Securities Times reporter.

Many brokerages pointed out that under the tight supply and demand of automotive chips, domestic chips may usher in a good replacement opportunity. It is reported that Chinese companies have already caught up in chip packaging and testing, and their market share has also increased globally. However, in terms of R&D and product design, domestic chip companies still need to improve.

According to an insider of a domestic brand car company, there are currently only 5 to 6 types of domestic automotive chips that can be used in cars, but a complete vehicle may involve more than 50 chips. The proportion of domestic automotive chips used is still very low.