Toyota and Nissan begin discussing production cuts as Renesas stops supplying

According to Nikkei, the supply recovery of semiconductor manufacturer Renesas Electronics is expected to continue until the summer. As the company ranks second in the automotive semiconductor market, the long-term suspension of supply has caused Toyota Motor and Nissan Motor to discuss reducing production of some models. Automotive semiconductors have become difficult to supply worldwide due to the cold wave in Texas, the United States. Some predict that due to the "Renesas fire impact", global automobile production will decrease by 1.6 million units from April to June 2021.

Renesas Electronics plans to temporarily resume production in late April, 30 days after the fire, and gradually start up equipment and ship it. In addition, since various procedures such as inspection take time, it is expected that it will take 90 to 120 days for shipments to return to the level before the fire. With no official product supply until late July at most, automobile companies are also beginning to have an impact on production.

A Toyota staff member who has cooperated with Renesas said, "We can still cope with semiconductors until June, but it will be difficult after July." Another executive explained, "Although it is expected that it will take some time to return to normal, it will be very difficult. A certain reduction in production is inevitable." The company said, "We are re-investigating the impact, including inventory, to see which model will cause a shortage of which semiconductor."

The semiconductor inventory secured by each automobile company, if the amount held by the dealership is included, can reach up to 3 months. The inventory quantity varies depending on the manufacturer and model, and some are only enough for one month. Honda staff revealed: "The production of some models may be affected around the end of April."

In addition, Nissan has also made mental preparations for long-term production cuts.

There is a high possibility that the impact will not be limited to Japanese manufacturers. Before the fire at the Renesas factory on March 19, there was already a shortage of automotive semiconductors. Due to the severe cold wave that hit Texas in February, NXP Semiconductors of the Netherlands and Infinion Technologies of Germany, which are among the world's major companies, stopped production.

General Motors (GM) of the United States said on the 24th that it would reduce production at its factories in Missouri and other places in the United States because the problem of semiconductor shortage cannot be solved. Renesas also has many transactions with German parts giant Continental. If Continental reduces production, European and American automakers will also be affected. Europe's Stelantis has already said it will reduce production on the grounds of difficulty in semiconductor supply.

Nomura Securities said that due to the impact of Renesas alone, global automakers' production volume from April to June may decrease by 1.6 million units, equivalent to 7% of the expected production volume during the same period. Japanese manufacturers are estimated to produce 1.2 million units, and overseas manufacturers are estimated to produce 400,000 units.

In order to resume product supply as soon as possible, Renesas has also outsourced production. It is reported that with the support of the Ministry of Economy, Trade and Industry, it is coordinating with overseas foundries such as Taiwan. President Hidetoshi Shibata said: "We will ship a corresponding number of replacement products from July to December to recover the lost part."

However, the company’s foundry, TSMC, which had high hopes for the company, has just terminated some of its commissioned contracts in order to resume domestic production in response to the semiconductor shortage that began before the fire. “The re-commissioned contracts may encounter difficulties,” said a person at a specialized trading company.

The procurement of manufacturing equipment is an ongoing issue. As of the 21st, 11 units were damaged and needed to be replaced, but the number of units confirmed to have been affected by fire, such as equipment corrosion caused by smoke and chlorine, has increased to 23. Of these, 18 units are expected to be put into use by June. The delivery date of the remaining five units has not yet been determined.

If the shutdown lasts too long, it will not only affect customers, but also Renesas' own operations. The company expects sales to decrease by around 17.5 billion to 24 billion yen due to the shutdown.

It may also lead to the rise of competitors. The Renesas Naka factory where the fire occurred was damaged in the Great East Japan Earthquake in 2011 and stopped production for about three months. Since then, due to the offensive of overseas competitors, the market share of microcontrollers that control the operation of automobiles and other machines has dropped from 28.1% in 2010 to 17.0% in 2020.

Sanshiro Fukao, chief researcher at Itochu Research Institute, pointed out: "To fully recover within 3 to 4 months, it may take about half a year."