Auto industry’s chip crisis unlikely to ease before 2025
Lack of ready capacity to manufacture analogue chips key reason for the prolonged shortage despite growing investments.
The pandemic has also dawned upon a new era for the global automotive industry, which is reeling under the tremendous pressure of constrained semiconductor chip supplies for almost two years now.
While the chip supply scenario has seen significant improvements in the recent past with companies such as Maruti Suzuki – India’s largest car manufacturer – which was able to utilise over 90 percent installed capacity in September with easier chip availability, the problem, however, is far from over.
According to Jeremie Bouchaud, director, Autonomy and E/E & Semiconductor, S&P Global Mobility, “The chip crisis is not over yet, there’s still a long way to recovery.”
The lead at the global automotive research agency said that there has been contradictory information over the last six months with respect to chip supplies. “While Volkswagen, Ford and Valeo were upbeat about chip availability around mid-2022, these global OEMs are again resorting to cutting down production forecasts amidst growing fears of chip shortage,” he told Autocar Professional.
The key reason, Bouchaud cited, is the lack of ready capacity to meet the burgeoning demand for older-generation analogue chips that fall in the 200nm to 40nm process-node range. According to Bouchaud, “There is insufficient capacity at semiconductor manufacturers to produce such chips, which are also in high demand from non-automotive industries, such as mobile phone companies as well.”
Bouchaud explained that to be future ready, semiconductor companies, have instead, outlined investments to expand capacities and strengthen equipment for advanced chips such as that bearing the 28nm, 14nm, 10nm, 7nm and 5nm process-node technologies.
“There has been only 15 percent capex in older-generation nodes in 2022-23, whereas a majority (84%) of investments have been made in the advanced process nodes,” he said.
Four-pronged monitoring approach
Bouchaud mentioned that the global research firm has been closely tracking the grave problem based on the latest data from the chip industry, and analysing their capacity as well as the demand from industries other than automotive.
The four-pronged analytical approach that he referred to takes into consideration the number of chips per car, which, as per Bouchaud, is only rapidly increasing with vehicles moving towards electrification. Also, how many cars can be produced for a given capacity, after considering how much of the chip capacity at semiconductor manufacturers is allocated to non-automotive demand, is a key parameter in the analysis as well.
“The next factor, which is also a short-term phenomenon, is the demand-supply mismatch, which, is leading to a ‘toilet paper effect’ or a situation of panic buying. We saw automotive Tier 1s buying just about any chips they were getting their hands on last year and this has distorted the entire supply chain. But it is getting better,” Bouchaud said.
Pointing to the structural limitations in the entire scenario that is unfolding into this global crisis, Bouchaud explained that essentially, there is just not enough capacity at chip manufacturers to produce several older / mature process nodes – those belonging in the range of 200nm to 40nm – and are essential to control systems such as power electronics and microcontrollers in a modern vehicle.
“S&P Global Mobility is monitoring these four key parameters on a quarterly basis to assess the ground situation and our vehicle production forecast continues to remain constrained by chip capacities for the foreseeable future,” he added.
New investments to bear fruit
While the semiconductor industry’s future-oriented investment focus on new-generation chips might not be good news for the automotive industry, which is presently scrambling for mature-node chips to manage production on a weekly basis, the heavy investments in the advanced process nodes, particularly the 28nm technology, augurs well for the supplies of microcontrollers.
“The next-generation microcontrollers are set to graduate to advanced nodes and these investments will end up being very relevant for the automotive industry as well,” Bouchaud asserted.
However, he further remarked that given the present demand, chip fabricators have acknowledged the growth prospects for older-generation chips and therefore, have renewed their focus on such semiconductors. “There has been a strong push on investments in capacity expansion for mature process nodes in 2022-23,” Bouchaud mentioned.
“But, despite the cashflow, the current demand for these mature chips is so strong that the spike in investments today would not be able to show desirable results in capacities any time before the next 18-32 months, which is the average lead time for commissioning of a new capacity in the semiconductor industry,” he cautioned.
“And on top of that, chip companies would need another 6- to 9 months to ramp up production, essentially meaning that the problem is not going to be solved any time before end-2024 or early 2025.
“2025 is really when we are actually going to see the industry coming out of the structural deficit of chip capacities for analogue chips,” Bouchaud signed off.
Meet the industry leaders at IEB AutoTech 2022 on November 15 in person to discuss more on the supply chain issues, or register online to watch the pre-recorded sessions with multi-lingual captions including English, and download all presentations in English.
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