IHS Markit sees semiconductor shortage impacting auto industry till Q3-Q4, 2021

Since late 2020, the disruption in supply chain of semiconductors for automotive sector has been impacting the supply of systems using semiconductors. Pressure built as the automotive recovery cycle clashed with increasing demand from the wider consumer electronics sector. Almost all major OEMs including M&M, Tata Motors, Bajaj Auto, TVS Motor have raised concerns over semiconductor shortage.

The semiconductor supply chain for microcontroller units (MCUs) normally has 12- 16 weeks lead time from order to delivery to OEM/Tier 1. With the current shortage, semiconductor production has approximately doubled the normal lead time to at least 26 weeks. Research agency, IHS Markit expects the situation to hit bottom around the end of March in the current year, although the supply chain may continue to remain constrained till Q3 of 2021 (July-September). In its volume assessment IHS Markit has so far only considered the impact in the current quarter (January-March).

Relative to chip supply, based on known factors today, IHS Markit analysts anticipate the bottom of the chip shortage crisis to end closer to March for the microcontroller units (MCUs). Beginning April, the MCU supply is anticipated to improve but still not meet OEM demand. In the third quarter, the MCU supply is expected to meet the OEM demand at that point of time but may not make up the missed demand from the first half of 2021. Further, it is believed that MCU supply may begin making up for the missed demand in the first half of 2021 by the last quarter of 2021.  

As per IHS Markit report, all OEMs will be impacted by the MCU supply constraints. As a result of this situation, integrated circuit (IC) vendors will need to revisit working with foundries, either by diversifying relationships to use more foundry suppliers or to use the same suppliers but diversify the number of regions the ICs are produced in. In addition, there may be some slight steps for chip manufacturers to bring back more in-house wafer processing, but IHS Markit does not expect a total reversing of the “fab-light” strategy which prevails in the industry to save on capital expenditure. Especially for advanced nodes, the dependence on Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) will remain.

As per IHS Markit update, overall, the global light vehicle production volume at risk has risen to nearly a million units for the first quarter. The report elaborated, "At this level, we still expect the majority of volume can be recovered across the balance of the year, so we expect the current shortages to be more of a seasonal impact, with volume lost in the first quarter, displaced to later in the year, rather than an absolute reduction to the 2021 calendar year forecast. However, as we move closer to the million-unit mark and as plants building high-demand programs are brought into the mix, it could become more challenging to entirely offset production losses within the calendar year."

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Global semiconductor shortage will disrupt supply chain well into 2021