Chip manufacturers were fined for price gouging, and domestic car companies "squatted and bought" to stage a chip war

The chip shortage crisis in the automotive industry that began at the end of 2020 not only failed to ease in the third quarter of this year as industry expectations, but has become more and more severe over time.

People from several automobile companies revealed to the Securities Daily reporter; "The new round of chip shortages that broke out in July has affected an area and a degree of shortage that exceeds the end of last year and the second quarter of this year. Only customers who are still buying now are wealthy, and some customers have switched to domestically produced chips." From the perspective of automobile production, the production of many automobile companies including Volkswagen, Honda, and Nissan has been nearly halved for three consecutive months.

"Now, the number of cars produced is determined by the number of chips produced. The production and sales of cars in the next few months depend entirely on the supply of chips." On September 10, Li Shaohua, deputy secretary-general of the China Association of Automobile Manufacturers, said in an interview with a reporter from Securities Daily that the current chip shortage problem in the automotive industry has exceeded expectations.

At the same time, there are some illegal vendors and speculative capital groups in China who maliciously snapped up chips, hoarded them, and drove up prices, causing the prices of some automotive chips to continue to rise. Recently, the State Administration for Market Regulation (hereinafter referred to as the "SAMR") announced on its official website that it would impose a total fine of 2.5 million yuan on three automotive chip distributors, Shanghai Qiete Electronics Co., Ltd. (hereinafter referred to as "Shanghai Qiete"), Shanghai Chengsheng Industrial Co., Ltd. (hereinafter referred to as "Shanghai Chengsheng"), and Shenzhen Yuchang Technology Co., Ltd. (hereinafter referred to as "Shenzhen Yuchang"), for driving up the prices of automotive chips.

Three companies were fined 2.5 million yuan

According to the penalty information released by the State Administration for Market Regulation, some illegal vendors and speculative capital groups in China maliciously snapped up chips, causing the prices of some automotive chips to continue to rise, with some rising by 30 to 40 times, seriously affecting the orderly production and healthy development of my country's automotive industry. To this end, in accordance with the "Price Law of the People's Republic of China", the State Administration for Market Regulation imposed administrative penalties on three distribution companies for driving up the prices of automotive chips, with a total fine of 2.5 million yuan.

According to the relevant person in charge of the State Administration for Market Regulation, after investigation, three distribution companies, Shanghai Qiete, Shanghai Chengsheng, and Shenzhen Yuchang, significantly increased the price of some automotive chips. For example, a chip with a purchase price of less than 10 yuan was sold at a high price of more than 400 yuan, an increase of 40 times. Under the trading conditions of balanced supply and demand, the markup rate of automotive chip traders is generally 7%-10%.

The State Administration for Market Regulation stated that the three distribution companies took advantage of the imbalance between supply and demand of automotive chips in my country and had the wrong idea that independent pricing was equivalent to arbitrary pricing. Not only did this fail to increase product supply and ease the contradiction between supply and demand, but it created tension, causing spare parts manufacturers, car companies and other links to panic stock up, exacerbating the imbalance between supply and demand and disrupting market price order.

"Previously, a fire broke out at the AKM (Asahi Kasei Microdevices Corporation) chip factory, which affected the price of chips. Everyone found that the products could still be sold after the price was raised several times, so the scope of chip speculation gradually expanded to cover most automotive chips, including Texas Instruments, NXP, Broadcom and other products, which became high-priced and popular commodities." A chip industry practitioner who did not want to be named told reporters that in order to hoard goods and make huge profits, some dealers even mortgaged their own properties.

The battle for chips is getting more intense

At the beginning of this year, natural disasters and man-made disasters such as the blizzard in Texas, the fire in Renesas, Japan, caused many chip manufacturers to reduce or stop production, and the overall "chip shortage" in the automotive industry has intensified. By July this year, the local epidemic in Malaysia intensified, triggering a global chip production crisis.

"It was disclosed at the beginning of the year that Volkswagen Group China and Volkswagen Group South had experienced large-scale production cuts due to a shortage of ESP and steering gear chips." Sina Finance columnist Lin Shi said that Malaysia is the world's most important production base for automotive-grade chips, packaging and testing. The outbreak of the epidemic in July caused the factories set up by many semiconductor manufacturers here to suspend production, affecting the production of large quantities of ESP chips.

Since then, the chip crisis has spread rapidly. Dozens of automakers, including Volvo, GM, SAIC, Hyundai Kia, Ford, NIO, Mercedes-Benz, Nissan, Honda, and Porsche, have been forced to temporarily suspend or reduce production, which has undoubtedly dealt a huge blow to vehicle manufacturers.

According to data from the China Association of Automobile Manufacturers, in August 2021, my country's automobile production and sales were 1.725 million and 1.799 million respectively, down 7.4% and 3.5% month-on-month, and down 18.7% and 17.8% year-on-year. According to the latest statistics from third-party data agency AFS, as of now, the global automobile market has reduced production by 6.442 million vehicles due to chip shortages, and the annual production reduction is expected to climb to more than 7.65 million vehicles.

Who is more affected by the chip shortage? Li Shaohua believes that joint ventures use stable, long-term procurement agreements in the global procurement system, so when the chip supply is tight, foreign-funded car companies basically have to stop production; while domestic brands will try every means to find chips to ensure their own production. In this process, the advantages of domestic brands are reflected.

However, he also said that after the competition in the first eight months, many chip resources have been exhausted in the circulation link, and the upstream supply recovery capacity has not yet been formed. The chip shortage has also spread from the previous MCU chip shortage to other types of chips. "So the advantages of independent brands in chip resources will no longer be obvious in the next step, and they need to be prepared to deal with it."

In fact, car companies have started the "chip war" very early. As early as early June this year, Volkswagen, Daimler, Toyota and other car manufacturers took the lead in taking measures to grab chips. In addition to increasing chip inventory, they also took the initiative to sign long-term contracts with dealers to obtain stable supply. Among them, Volkswagen took the lead in changing the just-in-time production method, allowing the supply chain to retain more inventory than before, reducing the impact of temporary parts shortages caused by unexpected situations.

"If it weren't for the insufficient supply of chips, the monthly sales of one of our small new energy vehicles might have doubled." An insider of a domestic brand automobile manufacturer told reporters that the company's leaders had already been shopping around the world. They would lead the team to personally wait at chip suppliers and manufacturers in order to buy as many chips as possible.

"The short-term chip shortage caused by the epidemic and other factors has exposed my country's shortcomings in key core technology reserves and supply chain control," said Ye Shengji, chief engineer and deputy secretary-general of the China Association of Automobile Manufacturers. "These problems and difficulties require vehicle and parts companies, including relevant research institutes and colleges and universities to work together to deal with them."