Uncovering the truth about the automotive semiconductor crisis

The current round of automotive semiconductor supply crisis is still ongoing. The imbalance between supply and demand in markets such as Japan, Europe, and North America has led to frequent production cuts and shutdowns by vehicle manufacturers. The rapid rebound of the Chinese auto market has not fundamentally eliminated the semiconductor supply crisis. With geopolitical tensions becoming increasingly tense, the semiconductor supply crisis, especially for automotive semiconductors, is deepening, and the reality of domestic substitution remains to be verified.

Recently, Japanese investment bank DBJ Research released an analysis report titled "Main Causes of the Shortage of Automotive Semiconductors and Measures to Stabilize Procurement," analyzing the semiconductor crisis in the automotive industry from a perspective other than China.

The following is the full translation.

abstract:

1. The semiconductor shortage that emerged at the end of 2020 is still continuing. Due to the economic slowdown and the impact of the new crown epidemic, the demand for automotive semiconductors has dropped sharply. In the subsequent recovery phase of automobile production, in addition to the priority given to meeting the strong demand for semiconductors for remote devices, the supply restrictions caused by the disaster have further exacerbated the shortage.

2. One of the main reasons for the long-term shortage of automotive semiconductors is supply chain disruption. Although the supply of semiconductors has gradually increased since 2021, due to the lack of information on supply and demand conditions, multiple orders have become the norm, resulting in a backlog of goods in the supply chain.

3. To solve this problem, it is necessary to know the necessary parts and the appropriate procurement volume, and it is worth considering a plan for multiple vehicle manufacturers to jointly own parts. We believe that the cooperation and information sharing in the supply chain achieved by this will help stabilize the procurement of new semiconductors needed in the future.

Full report:

The semiconductor shortage crisis that began at the end of 2020 is still ongoing. In particular, the procurement of automotive semiconductors has become more difficult, which has had a negative impact on the production and finances of vehicle manufacturers. This article re-examines the ins and outs of the shortage of automotive semiconductors, and on this basis believes that the main reason for the current semiconductor shortage is the squeeze on goods in the supply chain caused by repeated orders. At the same time, we also studied the feasibility of relevant operators jointly adopting solutions such as sharing of parts information.

1. The ins and outs of the automotive semiconductor shortage

There are three main reasons for the shortage of automotive semiconductors: The first is the Sino-US trade friction. Since US President Trump took office in 2017, the Sino-US trade friction has intensified. After President Biden took office, this situation continued, especially in December 2020, the US imposed export restrictions on semiconductor manufacturing equipment below 10nm (nanometer, a unit representing semiconductor process nodes) to China, forcing end users to re-examine their supply chains.

It is reported that after the introduction of control measures, 28/40/65nm products manufactured by foundries in mainland China were transferred to Taiwan and the United States for foundry production, resulting in tight operating rates of local factories. To judge the degree of tight production capacity, an operating rate of 90% is the baseline. From January to March 2021, the operating rate of foundries for cutting-edge products less than 45nm exceeded 95%, and the operating rate of foundries greater than 45nm exceeded 90%. At that time, it was expected that full operation could be resumed before October to December 2021 (in fact, due to the epidemic, it was not carried out according to the established time, editor's note).

The second point is that the COVID-19 pandemic has led to a decline in demand for semiconductors, forcing production and sales to shift to uses other than automobiles. The US-China confrontation has led to economic fluctuations. Since 2018, global new car sales have declined, and the demand for automotive semiconductors has also begun to decline in 2020. The COVID-19 pandemic that occurred in March 2020 has further reduced the demand for automobiles and automotive semiconductors, which was already on a downward trend.

On the other hand, the demand for remote support and home office and study caused by the COVID-19 pandemic has greatly increased the demand for electronic devices such as PCs, smartphones, and tablets, as well as consumer products such as TVs and games. Affected by this, semiconductor manufacturers have transferred the production capacity of automotive semiconductors to electronic devices and consumer products. Therefore, in the second half of 2020, when the automotive industry tried to increase production, the production capacity of automotive semiconductors was insufficient to meet the needs of the automotive industry.

The third point is that a series of disasters that occurred one after another at that time caused production restrictions. In October 2020, a fire broke out at the Nobeoka plant of Asahi Kasei Electronics. Initially, it was thought that outsourcing to Renesas Electronics and Fuji Electric could avoid the deterioration of the situation, but in March 2021, a fire also broke out at the Naka plant of Renesas Electronics' subsidiary. At the same time, semiconductor manufacturers such as NXP (Netherlands), Samsung (South Korea) and Infineon (Germany) were forced to temporarily close their factories in Austin, USA due to power outages caused by a record cold wave. A series of disasters turned into fatal injuries, causing an unprecedented severe shortage of automotive semiconductors.

2. Background of the long-term shortage of automotive semiconductors

2.1. Unable to expand production capacity

Automobiles are equipped with various semiconductor products, which are collectively referred to as automotive semiconductors in this article. Based on the inventory levels of semiconductor manufacturers during April-June 2022, it can be inferred that the shortage of semiconductors is easing overall. However, the degree of easing of the shortage varies depending on the device.

Many research institutions predict that analog devices and MCUs will continue to be in short supply. These products based on mature processes above 28nm need to produce a variety of products in the automotive and industrial equipment market segments, and semiconductor manufacturers are reluctant to invest in increasing production capacity (mainly due to limited profits, editor's note). The most advanced 5/3/2nm products will become the focus of future production capacity and profits. The data also shows that there are significant differences in the production increase structure of different process nodes.

However, even if we want to expand investment and quickly increase the production capacity of traditional process semiconductors, it is difficult to purchase wafer equipment for 150-200mm production, because the manufacturing equipment circulating in the market is increasingly inclined to support 300mm wafers. At the same time, Chinese manufacturers who are unable to enter the cutting-edge process semiconductors due to the US embargo have increased their purchases of 150-200mm wafer manufacturing equipment, making the supply in the second-hand market very tight.

These factors are structural factors that will be difficult to eliminate in the future. We believe that we cannot expect large-scale investments to immediately increase the production capacity of automotive semiconductors.

2.2. Difficulty in increasing inventory levels in advance

In response to the semiconductor shortage, the most natural choice is to seek a solution by increasing inventory levels. In our 2022 equipment investment plan survey, affected by procurement issues such as rising raw material costs and semiconductor supply shortages, the proportion of responses to "dispersion and diversification of overseas suppliers", "standardization of products and parts", and "ensuring strategic inventory" as supply chain contents for re-examination is increasing. However, the current semiconductor shortage situation once again highlights the difficulty for suppliers to increase traditional semiconductor inventory levels.

Originally, vehicle manufacturers and parts suppliers were more accustomed to adopting a Just in Time management approach. This concept of cooperation must be based on a relationship in which transactions last forever. In this case, each vehicle manufacturer has its own vertical supply system, and eventually formed a keiretsu model. Its advantage is that orders are guaranteed and suppliers can respond quickly to demands from vehicle manufacturers. However, due to the short product cycle and long manufacturing cycle of semiconductors and other products, the risk of increasing inventory becomes greater, which is not in line with the previous business relationship.

In addition, in March 2020, when the COVID-19 pandemic spread, semiconductor trading companies experienced cancellations of firm orders and difficulty responding to emergency orders from automotive suppliers and requests to increase inventory levels. In particular, since the beginning of 2022, semiconductor manufacturers and trading companies have asked automotive suppliers to guarantee that they will not cancel future orders, and have been unable to maintain procurement through keiretsu relationships.

In recent years, the keiretsu model has also undergone some changes. In addition to making progress in the commonality of parts, it has also attempted to jointly develop cutting-edge technologies with new participants such as IT companies to carry out software development aimed at autonomous driving.