Around the tracks: How the supply chain turmoil is revolutionizing the car industry

Automakers have been hit hard by the Covid-19 pandemic. Over the last three years, the industry has suffered lost production as assembly plants were shuttered due to semiconductor shortages, specifically mature semiconductors with process geometries larger than 40nm. 

One forecaster predicts 2022 will end with auto factories worldwide eliminating 4.26 million vehicles because of inadequate chip supplies. Toyota is expected to lower its full-year 2022 production forecast of 9.7 million cars due mainly to component shortages. General Motors expects to cut between 2 to 3 million units of planned production in 2023, on top of the 10.5 million lost in 2021 and the 3.6 million lost in 2022. Some automotive OEMs expect the chip shortage to continue well past 2023. However, not all automakers are vulnerable. Luxury brands, including BMW and Mercedes-Benz, report no significant supply issues, but they are in the minority.

While year-on-year electronic component availability is improving and prices are stabilizing across many categories, the automotive industry is still struggling. That’s because it relies on a class of mature semiconductors, over 40nm, for about 90% of its spending. Large, mature nodes are expected to dominate automotive demand through the decade because automakers have little incentive to transition to smaller leading-edge process nodes. Consequently, this mature class of semiconductors will experience steadily rising prices and longer lead times as the chip industry shifts production to sub-40nm parts. Consequently, automotive-specific IC lead times are between 40 and 60 weeks.

One problematic category is analog components, including resistors, capacitors, inductors and transformers. According to Supplyframe Commodity IQ, analog prices will remain elevated through the first quarter of 2023, with the likelihood of extending into the second quarter of 2023 and beyond.

Active components, specifically IGBTs and MOSFETs, are in high demand for auto body electronics, powertrains, chassis and safety, security, electric drivetrains, and infotainment systems. Lead times for transistors overall are two-and-half times above the Commodity IQ Lead Time Index, stretching beyond 52 weeks, and are forecast to remain high well into 2023. 

Supply chain professionals are getting relief for some electronic commodities as demand and prices moderate and inventories rise. Part of the reason is a slowdown in GDP growth, as central banks raise interest rates to curb inflation and slow down spending. In addition, large inventories of memory devices and some passive components have led to shorter lead times and lower prices. One significant consequence of rising interest rates and lower consumer spending is the prospect of a global recession in 2023. 

Building a Collaborative Future

If the auto chip shortage has changed anything, it is the acknowledgment of the importance of the relationship between car makers and their semiconductor suppliers in producing cars. As the industry transitions to EVs, the relationship will grow stronger. One sign of the shift is that automakers are starting to engage directly with foundries to develop and produce their semiconductors. 

For example, in late 2021, automaker Ford and chip foundry Global Foundries announced a strategic partnership to increase the supply of new chips for Ford designed and produced in the US. The relationship is focused on Global Foundries’ commitment to manufacturing semiconductors for next-generation electric vehicles (EVs). This includes joint R&D projects to develop battery-management systems, self-driving systems and chips for in-car data networking and battery management.

Ford is not unique. Volkswagen’s software unit Cariad and chip maker STMicroelectronics (STM) are co-designing VW’s chips. They will be part of the Stellar microcontroller family of semiconductors manufactured by the Taiwan Semiconductor Manufacturing Company (TSMC).

Other categories of automotive chips, such as networking and battery management, are dominated by NXP, Marvell Technologies and Analog Devices. These companies either manufacture their own chips or work with GlobalFoundries’ rivals. 

A key Toyota supplier, Denso Corp., one of the world’s top automotive semiconductor manufacturers, is considering spinning off its chip business, which generates around $3.1 billion in sales. Well-known as the world’s second-biggest auto-parts maker, Denso has built a significant presence in the automotive chip business. With semiconductor-related capital expenditures totaling around $1.2 billion over the past three years, Denso ranks fifth among the world’s largest suppliers of automotive chips.

In a similar collaborative effort, South Korea’s Hyundai Motors’ research center and Hyundai Mobis, the company’s auto parts affiliate, announced in September 2021 it had developed a silicon carbide-based power chip for Hyundai EVs. The project included partner companies, such as system chip manufacturer Magnachip Semiconductor. Power semiconductors are vital components for extending the driving range of EVs.

The next few years will see a transformation of the automotive industry as it shifts from the internal combustion engine to electric batteries. The faster automotive companies transition, the more successful they will be in the coming years.How supply-chain turmoil is remaking the car industry

During this time of transition and transformation, it’s imperative for automakers to stay agile and aware. Learn more about how you can stay ahead of the curve, discover Supplyframe Commodity IQ today.