From India to China to the US, automakers cannot make vehicles — not that no one wants any, but because a more than US$450 billion industry for semiconductors got blindsided. How did both sides end up here?
Over the past two weeks, automakers across the world have bemoaned the shortage of chips. Germany’s Audi, owned by Volkswagen AG, would delay making some of its high-end vehicles because of what chief executive officer Markus Duesmann called a “massive” shortfall in an interview with the Financial Times.
The firm has furloughed more than 10,000 workers and reined in production.
Photo: Reuters
That is a further blow to an industry reeling from COVID-19-induced shutdowns and a global market that had already been struggling under a growing regulatory push toward greener vehicles and the technology to keep up with the future of mobility.
Companies appear to have been off in their calculations that traditional auto production was all but coming to a halt, and that new-era vehicles were almost here.
In reality, talk of the death of the conventional auto industry has been premature. So were prospects around the technology upgrade that has been under way.
Yes, demand has been down and slowing, but we have been hovering around “peak auto” for a while, with global sales of 70 million to 80 million a year. They fell 15 percent to 66.8 million last year.
However, the expected onslaught of new-technology vehicles has not been as severe as the hype. Announcements of billions of dollars of investment covering electric to hydrogen and autonomous systems would have you believe that we have entered a new era of driving — or of being driven around. Yet electric and autonomous vehicles still account for only about 4 percent of all sales.
Misjudging expectations means that companies ended up effectively shelving too early their investment in the more mundane chips that help steer, brake and push up windows they actually need.
Meanwhile, chipmakers are not producing enough of them and have put money in higher-margin businesses. One result is that we are clearly at an imbalance of supply and demand.
Consider the number and types of semiconductor chips that go into a vehicle. Demand is not just about the number of automobiles, but how many chips each one needs. Electronic parts and components account for 40 percent of the cost of a new, internal-combustion engine vehicle, up from 18 percent in 2000.
That portion would continue to rise. It is becoming a problem across the board, and not just for higher-end models. India’s automakers’ association has complained of a shortage, and many vehicles there are relatively less sophisticated given pricing considerations.
So there was always going to be some sort of demand, whether you argued that more or fewer people would be driving.
Automotive electronics were expected to be the fastest-growing markets in the semiconductor industry, accounting for about 12 percent of sales revenue by next year, according to an April 2019 Deloitte report.
The 2022 model year is expected to be a key one. Credits that many automakers accumulated to meet greenhouse gas emission rules would expire at the end of the 2021 model year.
More compliant vehicles would be needed, and electrics and hybrids use twice the semiconductor content as traditional models, according to a PriceWaterhouseCoopers LLP report.
On the supply side, the concern was more around keeping up with technology. In October 2019, the likes of Samsung Electronics Co and SK Hynix Inc were contending with potential overproduction issues of certain types of chips. A year earlier, Taiwan Semiconductor Manufacturing Co (台積電), the world’s largest contract chipmaker, had sounded concerns about oversupply in 28-nanometer nodes — in demand for higher-end vehicle features at the time — as its other customers migrated to more advanced chipsets.
Part of the issue is that there is no fast substitute. Customers usually put orders in eight to 10 weeks ahead, but lead times have gotten much longer since the COVID-19 outbreak. Automakers in China, for instance, do not have more than a few weeks of supply on hand in keeping with lean, cost-friendly manufacturing operations.
There is also an equipment shortage, so foundries that make wafers typically suited for broad-based auto usage have limited capacity.
Chipmakers’ cycles — from development to certification — are long. Keeping track of and aligning with shifts in auto markets is difficult. The pandemic has not made that any easier. It seems that none of the players are quite in sync. The supply-demand balance is far too delicate. Even if consumer electronics are sucking up the chip supply, with everyone suddenly playing a lot more video games or increasing use of personal computers, manufacturers should not be disabled from making vehicles.
Everyone’s math ought to add up better than this.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
MediaTek Inc (聯發科), the world’s biggest 5G chip supplier, saw its ranking rise by one notch to No. 7 last year among world semiconductor vendors, as it benefited from the rapid 5G smartphone uptake in China after Huawei Technologies Co (華為) was forced to exit the market, Gartner Inc said in a report yesterday. MediaTek’s revenue soared 58.8 percent to US$17.45 billion last year from US$10.99 billion in 2020, outpacing the global semiconductor industry’s growth of 25 percent, according to Gartner’s tally. That gave MediaTek a 3 percent market share. The Hsinchu-based chip company ranked No. 8 in 2020, behind Texas Instruments
Medigen Vaccine Biologics Corp (高端疫苗) yesterday reported higher neutralizing antibody levels in people who were given its COVID-19 vaccine as a booster after two AstraZeneca doses, the company said. In a trial of 200 participants who received Medigen’s COVID-19 vaccine, neutralizing antibodies against the Omicron variant of SARS-CoV-2 grew by 5.7 times one month after being administered, Taoyuan General Hospital said. Medigen said that the results have been submitted to medRxiv, an online platform for researchers to share complete but unpublished papers. Another trial conducted by National Taiwan University Hospital showed that among 45 participants who received three doses of the Medigen vaccine,
BEATING EXPECTATIONS: With electric vehicles and the metaverse on the horizon, the company predicts a solid first quarter as customers stockpile inventories Key iPhone assembler Hon Hai Precision Industry Co (鴻海精密) could achieve an “unprecedented” performance in the first quarter, chairman Young Liu (劉揚偉) said. “Our performance in the first quarter might surpass how we fared in the past few years, and it is likely that some staff at key sites might only get two days off during the Lunar New Year holiday,” Liu said in prepared remarks for the company’s annual workers’ party yesterday. Manufacturers around the world are racing to build up inventory out of fear that outbreaks of the Omicron variant of SARS-CoV-2 and other uncertainties could further disrupt their supply
Jardine Matheson Holdings Ltd (怡和洋行), a diversified Asia-based group whose businesses span property, transport, retail and luxury hotels, is considering strategic options for its restaurant unit, people with knowledge of the matter said. The Singapore-traded conglomerate is weighing a sale of Jardine Restaurant Group (怡和餐飲集團), a wholly owned subsidiary that operates KFC and Pizza Hut franchises in Taiwan, Hong Kong, Macau and Vietnam, said the people, who asked not to be identified as the information is private. The subsidiary also runs Pizza Hut restaurants in Myanmar, according to its Web site. Jardine Matheson has held preliminary discussions with advisers, the people said, adding
RSS