The impact of the shortage of automotive chips has begun to emerge, and China's automobile production may stagnate

Last week, rumors about Volkswagen's suspension of production due to chip shortages quickly spread. The rumors claimed that the shortage of automotive chips would lead to the inability to produce two major modules, ESP (electronic stability program system) and ECU (electronic control unit), namely the on-board computer.

Rumor has it that both the North and South Volkswagens have temporarily stopped production of their new cars due to insufficient chip supply. SAIC Volkswagen stopped production on December 4, and FAW Volkswagen also stopped production at the beginning of this month.

Volkswagen China responded that the uncertainty brought about by the COVID-19 outbreak has affected the chip supply of some specific automotive electronic components. The full recovery of the Chinese market has also further driven the growth of demand, making the situation more severe and causing some automobile production to face the risk of interruption.

Volkswagen China also said that although the chip supply has been affected, the situation is not as serious as rumored, and it is currently seeking a solution. We are closely following the development of the situation and have already coordinated with the headquarters and relevant suppliers to actively take countermeasures. At present, the customer delivery of the relevant vehicles has not been affected.

The sudden outbreak of the COVID-19 pandemic has had a significant impact on global automobile and parts production, disrupting the entire supply chain. Although China was the first to recover from the pandemic, chips such as ECU and ESP are heavily dependent on imports, and the countries where these chips are produced are still under the shadow of the pandemic.

A person related to SAIC Volkswagen said, "This is not an emergency. We have been prepared for it. The chip market supply is a global issue. It is not just the automotive industry that is affected, and the automotive industry is not just Volkswagen that is affected."

In addition, an insider in the automotive industry revealed that the chip shortage will continue to affect China's automobile production. Not only Volkswagen, but many joint ventures and local automobile manufacturers will be forced to suspend production in a short period of time, but the degree of impact will vary.

Under the pressure of chip shortage, automotive chip suppliers have also raised prices one after another. Renesas, NXP and others have issued price increase letters. In the first 11 months of this year, China's auto sales are expected to exceed 22 million units, down only 3 percentage points from the same period last year. With the arrival of the peak season for auto sales at the end of the year, market demand may far exceed production capacity.

ESP, or Electronic Stability Program, is a must-have for high-end cars, especially SUVs. There are seven major ESP suppliers in the world, including Aisin under Toyota, Hitachi, which supplies Nissan, Nissin, which supplies Honda, and Mando, which supplies Korean models. These four companies basically only supply their own groups. The other three are all German manufacturers, including Bosch, Continental Automotive and ZF. Bosch almost monopolizes the domestic market, especially its own brands. In addition, it is also common in Mercedes-Benz, Audi, Cadillac and Buick. Continental Automotive mainly supplies Volkswagen, BMW, PSA and Mercedes-Benz, and ZF mainly supplies American cars. Bosch has officially responded that there is no shortage of goods.

It is worth noting that recently, automotive chip leaders NXP and Renesas Electronics have begun to raise prices due to tight supply. On November 26, NXP told customers that due to the impact of the new crown epidemic, NXP faced the dual impact of severe product shortages and increased raw material costs, and decided to raise product prices across the board. According to industry insiders, the supply of wafers will continue to be tight in the coming year, and the price increase of NXP products may start from 5%. Some products require customers to sign a one-year NCNR (no cancellation, no return) agreement. On November 30, Renesas Electronics also announced that it will increase the prices of some analog and power products from January 1 next year.

The recent wave of chip shortages and price increases is not only in the automotive field, but also in the entire chip field. The reason is that the health incident at the beginning of the year hit everyone's confidence, demand in various industries plummeted, and the automotive industry declined particularly significantly. Everyone reduced orders and digested inventory. By the third quarter, the health incident was under control and the automotive industry rebounded, especially the Chinese automotive industry. As the prevention and control of health incidents in Europe and the United States have become normalized, people seem to have learned to coexist peacefully with health incidents, consumer confidence has returned, and home economy products such as tablets, laptops, and game consoles continue to heat up. This has led to a sharp increase in chip demand.