Ideal Auto bought chips from the black market at a price 800 times higher? Official response

Since the second half of last year, chip shortages have become the biggest problem plaguing all automakers. Many companies have therefore lowered their delivery expectations and extended delivery times, including the new electric vehicle forces that have seen hot sales in recent years.

On October 9, according to a report by the First Financial Daily citing information from insiders, Ideal Auto, whose delivery volume has dropped due to the "chip shortage", recently purchased thousands of electronic parking brake (EPB) chips on the black market at a high price. The purchase price of a single chip reached 5,000 yuan per piece, while the normal price of an EPB chip is about 6 yuan per piece. The black market price is more than 800 times the normal price.

In response, Ideal Auto responded to multiple media outlets, saying: "The information is not true."

Millimeter-wave radar chip shortage

Ideal Auto said that the company did its best to ensure chip supply when there was a chip shortage. In the current situation of tight chip supply, all car companies will choose to purchase spot chips through formal channels to ensure supply, which is a very normal industry behavior.

According to Ideal Auto's September data, it delivered a total of 7,094 Ideal ONEs, a year-on-year increase of 102.5% from September 2020, but a month-on-month decrease of nearly 20% from August.

Not long ago, Ideal Auto also announced that due to the chip shortage of millimeter-wave radar suppliers, the company expects vehicle deliveries in the third quarter of 2021 to drop from the previously estimated 25,000 to 26,000 vehicles to 24,500 vehicles. Under normal circumstances, the Ideal ONE produced by Ideal Auto should be equipped with 5 millimeter-wave radars. In order to minimize the impact of chip shortages on new car deliveries, Ideal Auto will communicate with users and plan to deliver vehicles that lack some millimeter-wave radar chips.

Ideal Auto also released a document titled "Communication on the Delivery Plan for Ideal ONE". The company said that due to the impact of the epidemic in Malaysia and force majeure, the supply of millimeter-wave radar chips was severely in short supply, affecting the production and on-time delivery of Ideal ONE.

Users who were originally scheduled to take delivery in October-November can choose to take delivery of the three-radar version with 1 front forward + 2 rear corner millimeter-wave radars, and plan to add the millimeter-wave radars laterally from December to the Spring Festival. During this period, the automatic lane change and front crossing vehicle warning of the 3-radar vehicle assisted driving system (NOA) will not be available, and other ADAS functions can be used normally.

In addition, users can choose to deliver the 3-radar model in advance or wait until December for the 5-radar model to be delivered. Ideal Auto will arrange the corresponding delivery based on the user's opinions.

Delivery volume fell out of the top three

Since 2021, Ideal Auto's delivery volume has been gradually increasing. With only one model, it has topped the sales champion among new car-making forces for several consecutive months since June this year, and its sales performance has exceeded that of NIO and Xpeng Motors, which have more products.

But the chip shortage has affected Ideal Auto's normal delivery rhythm.

Recently, the three companies, Wei, Xiaopeng, and Li Auto, all announced their sales in September. During the National Day holiday, Xiaopeng Motors officially announced that it became the first new Chinese car-making force to "deliver more than 10,000 vehicles per month", with sales of 10,400 vehicles; Weilai Automobile followed closely behind, and the sales data released also showed that its delivery was 10,600 vehicles; only Ideal Auto's sales fell by 24.8% month-on-month to 7,094 vehicles. In addition, Ideal Auto's sales ranking in September fell to fourth, behind Weilai, Xiaopeng, and Nezha Auto.

"We are taking more measures to ensure the supply of parts and hope to shorten the waiting period for users to pick up their cars as much as possible," said Shen Yanan, co-founder and president of Ideal Auto.

Ideal Auto has previously confirmed that the company's millimeter-wave radar and ultrasonic radar are all supplied by Bosch. On August 17, Xu Daquan, vice president of Bosch China, posted a circle of friends, saying that STMicroelectronics' packaging and testing plant in Muar, Malaysia was greatly affected by the new crown epidemic, and the local government had to order it to close some production lines until August 21. This has had a very big impact on the chip supply of Bosch VCU, TCU and ESP/IPB systems. Bosch expects that these chips will basically be out of supply in the rest of August.

One month later, in September, the State Administration for Market Regulation punished a number of companies that drove up the prices of automotive chips. Among them, three distributors, Shanghai Qie Te Electronics Co., Ltd., Shanghai Chengsheng Industrial Co., Ltd., and Shenzhen Yuchang Technology Co., Ltd., sold some automotive chips at a substantial markup. For example, a chip with a purchase price of less than 10 yuan was sold at a high price of more than 400 yuan, a 40-fold increase. China Business News even disclosed news from Bosch insiders that the black market price of its ESP chips had skyrocketed 300 times. In order to suppress the skyrocketing price of black market chips, Bosch has recently refused to test and install software for black market chips.

However, the impact of chips is a problem that all car companies are facing. For example, Ma Lin, communications director of NIO, posted on his Weibo at the end of September that almost all the cars on display in the showroom were sold out, and only car models could be displayed, and the chip supply was "under great pressure."

Previously, affected by the supply of parts, NIO's August deliveries fell 25.9% month-on-month. NIO said it hopes to make up for August's production as much as possible in September by cooperating with supply chain partners and adjusting the factory's production rhythm; but even so, it will still have an impact of about 1,000-2,000 units on the entire quarter.

The troubled automotive chip makers

Chen Shihua, deputy secretary-general of the China Association of Automobile Manufacturers, previously stated that June to August is the period most affected by the chip shortage. With the national level supervision on chip price gouging, the chip shortage situation will gradually ease.

After nearly a year of shortage of automotive chips, there is still no clear sign of relief. On the evening of October 7, a 6.1-magnitude earthquake occurred in the northwest of Chiba Prefecture, Japan. Renesas, the world's third largest automotive chip manufacturer, announced on its official website that some lithography equipment automatically stopped operating due to sensing shaking. It is currently undergoing quality inspection and confirmation, and is expected to resume work within 8 days. The automotive microcontroller chip market share produced by Renesas accounts for about 30% of the global market.

According to the latest forecast released by US consulting firm AlixPartners, the semiconductor shortage will lead to a revenue loss of $210 billion in the global automotive industry in 2021, a significant increase from the $110 billion estimated in May. At the same time, AlixPartners predicts that the total net automobile production in 2021 will increase from a decrease of 3.9 million vehicles predicted in May to 7.7 million vehicles.

As for when the automotive "chip shortage" problem will be truly solved, many car companies have said that it will be at the end of 2022 or early 2023.