A shortage of computer chips that forced global automakers to cancel production plans for millions of cars over the past two years is easing — at a new and permanent cost to auto companies.
What was “war-room operations” to deal with chip shortages is becoming a built-in feature of vehicle development, executives in both industries say. This shifted the risks and some of the costs to the car manufacturers.
Start-ups such as General Motors Co, Volkswagen AG and Ford Motor Co are negotiating directly with chipmakers. Automakers such as Nissan Motor Co Ltd and others are accepting longer order commitments and larger inventories. Key suppliers including Robert Bosch and Denso are investing in chip manufacturing. GM and Stellantis said they will work with chip designers to design components.
Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on chip development and more capital commitments in exchange for better visibility into their chip supplies, executives and analysts say.
It’s a U-turn for automakers that previously relied on suppliers — or their suppliers — to get semiconductors.
For chipmakers, the still-evolving partnership with automakers is a welcome — and overdue — reset. Many semiconductor executives are pointing the finger at automakers’ lack of understanding of how the chip supply chain works — and an unwillingness to share costs and risk — for much of the recent crisis.
The costly changes come just as the auto industry appears to be reeling from the worst of an even more costly crisis that has cut 13 million cars from global production since the start of 2021, according to one estimate.
CC Wei, chief executive of the world’s largest chip maker Taiwan Semiconductor Manufacturing Co, said he had never had an auto industry executive call him – until the shortage became desperate.
“For the past two years, they’ve been calling me and acting like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One car manufacturer called to urgently request 25 wafers, said Wei, who is used to sending orders for 25,000 wafers. “No wonder you can’t get the support.”
Thomas Caulfield, chief executive of GlobalFoundries Inc, said the auto industry understands it can no longer leave the risk of building billion-dollar chip factories to chipmakers.
“One element of the industry cannot carry the water for the rest of the industry,” he told Reuters. “We will not use capacity unless that customer is committed to it and has ownership status in that capacity.”
Ford announced that it will work with GlobalFoundries to secure its chip supply. Mike Hogan, who heads GlobalFoundries’ auto business, said more similar deals with other automakers are in the works.
SkyWater Technology Inc, a Minnesota chipmaker, is talking to automakers about putting “skin in the game” by buying equipment or paying for research and development, Chief Executive Officer Thomas Sondermann told Reuters.
Closer cooperation with automakers and their suppliers has yielded long-term agreements worth about $4 billion for power management chips made from silicon carbide, a new material that is gaining popularity, CEO Hassan El-Khoury said. “We are making billions of dollars of investment every year to scale up this operation,” he told Reuters. “We’re not going to build factories with hope.”
Michael Hurlston, chief executive of Synaptics Inc, whose chips drive touchscreens that have held up some car production, said the recent, more direct collaboration with carmakers could create new business opportunities as well as risk management.
Hurlston said the auto industry has warmed to the use of OLED screens, which are less durable than LCD screens, a factor many say would limit their use in cars despite better contrast and lower power consumption.
“But that perception has changed quite dramatically in the last two years. And that perception has changed as a direct result of being able to talk to (the auto industry),” he said. “The paradigm has really, really shifted for us.”
The chief executives of Japan’s Renesas Electronics Corp and the Netherlands’ NXP Semiconductors NV told Reuters they are recruiting engineers to help automakers design a new architecture in which a single computer will centrally control all functions.
“They woke up,” said NXP CEO Kurt Sievers. “They understood what was needed. They are trying to find the right talent. It’s a big change.”
Average semiconductor content per vehicle will exceed $1,000 by 2026, doubling since the first year of the pandemic, according to Gartner. One example: the battery-powered Porsche Taycan has over 8,000 chips. That will double or triple by the end of the decade, according to Volkswagen.
“We realized we were part of the semiconductor industry,” said Volkswagen Group’s Berthold Hellenthal, senior manager for semiconductor management. “We now have people dedicated solely to the strategic management of semiconductors.”
Securing — and keeping — chip engineers will be a challenge for automakers, which will have to compete with the likes of Google, Amazon.com Inc and Alphabet Inc’s Apple Inc, said Evangelos Simoudis, a Silicon Valley venture capital investor. and an advisor who works with both established car manufacturers and start-ups. “I think that will lead to acquisitions,” he said.
Unlike Tesla Inc, which designs its own core chips, Simoudis said traditional carmakers will have to juggle production of legacy car models while making new investments.
AutoForecast Solutions (AFS) estimates that microchip shortages have forced automakers worldwide to halt more than 13 million vehicles from production plans since the start of 2021.
“It’s an arrogant industry,” said Sam Fiorani, vice president of global vehicle forecasting at AFS. “Sometimes it just bites them in the back.”
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