Car Makers Reap What’s Sown During Chip Shortage

Article By : George Leopold

The latest round of production cuts shows there’s no end in sight for The Great Semiconductor Shortage of 2021.

Despite optimistic predictions that auto makers have seen the worst of ongoing semiconductor shortages, sources closer to the technology supply chain maintain things will get worse before they get any better.

Industry consultant Semiconductor Intelligence downplayed auto industry assertions about the second quarter representing the “trough” of IC supply chain disruptions. Citing a growing list of auto production cutbacks stemming from the chip shortage, the market tracker countered in recent weeks that “the shortage of semiconductors for automotive applications is getting worse.”

It cited production cuts at Ford, GM, Hyundai, Toyota, the merged Fiat-Chrysler-Peugeot group called Stellantis and Volkswagen.

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The only bit of good news was a recent forecast by Daimler AG that it expects semiconductor supplies to improve during the fourth quarter. Still, ongoing shortages will slow production next year, with a recovery not expected until 2023.

Automakers are “primarily to blame for their semiconductor shortages since they drastically cut production and semiconductor orders while other semiconductor applications were either relatively stable or growing,” Semiconductor Intelligence declared in a late September research note.

“Another contributing factor was automakers use of Just-In-Time inventory management systems… designed to reduce automakers’ parts inventories by working with suppliers to furnish parts just as they are needed for production,” it added.

Complicating matters further, car makers require large volumes over extended periods as they ramp new models loaded with electronics. Now, many find themselves competing with smartphone and PC manufacturers for a limited supply of chips. Pandemic-slowed IC production in Asia along with other supply chain bottlenecks have exacerbated the shortage of devices like microcontrollers, forcing car makers to cut production for the foreseeable future.

Tesla, which has attempted to ride out the chip shortage via redesigned MCUs and alternative suppliers, acknowledged it is also struggling to reduce EV costs amid the chip shortage.

“We are seeing significant cost pressure in our supply chain,” Tesla CEO Elon Musk noted during its recent annual shareholder meeting. “So, we’ve had to increase vehicle prices, at least temporarily, but we do hope to actually reduce the prices over time and make them more affordable.”

Earlier this year, IHS Markit forecast that MCU supplies would catch up with manufacturers’ demand during by the third quarter, “but perhaps not make up the missed demand from the first half of 2021.” MCU supplies could catch up with first-half demand by the end of the year, it added, offering car makers and other MCU integrators at least a glimmer of hope that the worst of the Great Semiconductor Shortage of 2021 may be subsiding.

The supply chain whipsaw offers painful lessons for car makers that, analysts agree, have no one to blame but themselves. “Longer term, the automotive industry needs to make supply assurance as high a priority as cost savings to incentivize the supply chain to be more diverse,” said Phil Amsrud, automotive supply chain and technology analyst at IHS Markit.

“Moving to more advanced process nodes makes the industry even more susceptible to a limited number of foundry options.”

This article was originally published on EE Times.

George Leopold has written about science and technology from Washington, D.C., since 1986. Besides EE Times, Leopold’s work has appeared in The New York Times, New Scientist, and other publications. He resides in Reston, Va.


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