Carmakers call for transparency in chip supply

The automotive industry has suffered a critical shortage of semiconductors since plants came back online to strong demand in 2020, following the initial Covid lockdowns. The situation is not expected to improve significantly until next year.

Predicting how shortages may develop and continue to impact the industry is incredibly difficult, especially as new factors such as the war in Ukraine and China’s zero-Covid policy continue to strangle economic activity. At last week’s Automotive Logistics and Supply Chain Europe conference, experts explained that more localised production was needed at time of heightened supply chain risk.

There are numerous factors contributing to the semiconductor crisis but the crux of the problem came when the sudden lack of demand for the chips from the automotive industry coincided with an increase in demand for consumer electronics. Car plants shut down globally as Covid spread beyond China and orders were cancelled, while the demand for electronics increased. Now the demand from the car industry is as intense as ever.

That is helping drive the growth of semiconductor sales. This year, chip sales are expected to grow to $625 billion (+10%). While the vast majority of chips are produced in Asia, huge investments are now being made in Europe to localise supply and take the risk out of supply chains vulnerable to disruption. European authorities hope to reach a 20% market share in chip manufacturing by 2030.

The importance of transparency
The automotive and chip manufacturing sectors are now working together more closely.

Semi is a global industry association representing electronics manufacturing and supply. Laith Altimime, president of Semi Europe, said better visibility was needed in the supply of chips to an automotive industry eager for end-to-end transparency.

This helps mitigate risks and reflects a change in the business model, where potential disruption is consciously mitigated.

“Transparency beyond the tier one is of paramount importance,” said Altimime.

Increased communication throughout the supply chain means knowledge is shared in all both directions. It is important for OEMs to have dialogue across the whole supply chain, so they expand their understanding of the product components in both software and hardware.

European investments in wafer fabrication facilities (fabs) are already easing the pressure and the region is looking to increase capacity to meet rising demand. Altimime highlighted Bosch’s semiconductor manufacturing plant in Dresden as an example of this.

European authorities are hoping that this kind of investment will make the European semiconductor manufacturing stronger over the next five to ten years.

Continued disruption
While much of the world is already looking beyond the Covid crisis, there remains a big problem in China, primarily in Shanghai. The shutdowns at the world’s largest port city in line with the government’s zero-Covid policy have hit logistics networks badly.

Ron Glowinsky, vice-president of global sales at Courier NetWork (CNW), explained how the logistics provider is now having to make daily calls with Chinese colleagues to maintain an accurate perspective of supply and ensure that parts are moved from operational airports.

“We see the demand growing from Europe and the rest of the world and that’s a big challenge because there is not much capacity out of the airports in Asia-Pacific,” Glowinsky said.

This has resulted in flight providers focusing their investments on cargo planes, just as passenger flights begin to bounce back.

Moreover, the recent outbreak of war between Russia and Ukraine has made it more difficult to move freight and lengthened flight times. Partly as consequence of Russian sanctions, fuel prices have risen, which itself impacts the cost of services for OEM customers.

All of this takes place against the backdrop of a Taiwan-based monopoly over chip production. As of 2021, 64% of semiconductor production came from Taiwanese companies such as TSMC.

The concern for global production is that Taiwan remains in a disputed situation regarding its sovereignty and questions of a potential forced re-unification of the island with mainland China could make mean a precarious future. Therefore, investments in localising supply chains in Europe have become all the more critical.

Semiconductor production is expected to double by 2030. Europe currently accounts for 8% of global chip capacity, and is aiming to nearly double this number over the next decade. According to Altimime, this expected improvement presents great opportunities in the near future but sustainability and supply chain questions still need to be addressed.

Ron Glowinsky highlighted an inherent catch-22 dilemma with regard to chip production. While there is an imperative to invest in machinery to produce chips, it is likewise the case that more chips are required to produce machines. Recent investments by European governments in new factories show that authorities are conscious of what needs to be done.