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The Recovering Auto Industry is Facing “Chip Shortage”

2021-6-24 11:29:58

A new round of global chip production shortage and price increase is constraining the recovery of the auto industry.

“The biggest challenge now is the supply chain, especially that of microcontroller unit (MCU) chip, which has never happened before”. Musk said frankly in his personal social media.

This is related to the unexpected recovery of the auto industry in the past year. According to the latest data from the China Passenger Car Association, the number of retail sales of new-energy passenger vehicles reached 185,000 in May, a year-on-year increase of 177.2% and a month-on-month increase of 17.4%. The wholesales of new-energy passenger vehicles reached 196,000 in May, a month-on-month increase of 6.7% and a year-on-year increase of 174.2%, showing good momentum for strong growth.

The latest quarterly and monthly reports of major automakers have shown good records of production and sales. SAIC Motor produced 392,600 vehicles in May and raised the total vehicle production in the first five months to 2,011,900, a cumulative year-on-year increase of 32.75%; the sales in May were 406,700, and the total sales in the first five months reached 1,968,700, a cumulative year-on-year increase of 25.42%. Tesla’s wholesales in May were 33,463, a year-on-year increase of 202% and a month-on-month increase of nearly 30%. Xpeng Motors delivered 5,686 vehicles in May, a sharp increase of 483% over the same period of last year...

For a short term, although all types of automakers suffer from chip shortage to varying degrees, there does not seem to be a significant reduction in sales. Li Shaohua, Deputy Secretary-General of the China Association of Automobile Manufacturers, stated that the impact of chip shortage is both explicit and implicit. What is explicit is the short-term production suspension by various automakers, which is in fact an adjustment to the pace of production; what is implicit is the sales data. The production data in the first 4 months shows that the overall market is good, even better than the same period in 2019. The growth of the market has also brought an increase in demand.

In fact, in order to cope with chip shortage, some automakers have been involved in the “competition for chips” at the beginning of this year. Some automaker executives have been going on the “shopping spree” around the world since the beginning of the year, discussing supplies with chip suppliers, and some even took turns to wait at the door of chip manufacturers to secure the chips first.

According to China Trade News, the auto industry has always been customers-oriented. Consumers are having higher expectations for the power performance, economy and comfort of automobiles in recent years, and the “intelligence” of automobiles has sharply increased the demand for chips. For example, the majority of automobile parts goes to electronic equipment. Chips are indispensable for driver command input and conversion, judgment on driving conditions, analysis on road conditions, human-computer interaction in the information and entertainment system, and transmission control. The number of electronic control units (ECU) required for a traditional fuel vehicle is about 70 to 150, while that in smart cars has reached more than 300. The demand for ECUs in automobiles will further increase, which determines the auto industry’s high dependence on the production capacity of the semiconductor chip industry.

When analyzing the reasons for chip shortage, an industry insider said in an interview with our reporter that the production capacity of chip factories is impacted by COVID-19, while the model of “work from home” during the epidemic has greatly stimulated the needs for consumer-grade chips. Thus, chip manufacturers devote most production capacity to consumer-grade chips with higher profit margins. In addition, due to the impact of the epidemic last year, the auto industry has drastically reduced production, and automakers in various countries cancelled a large number of orders. However, as the epidemic was brought under control in the second half of the year, the global auto market recovered more than expected and major automakers began to rapidly increase production. Thus, automakers and suppliers face the problem of insufficient stock.

In addition to the misjudgment on market supply and demand, major chip manufacturers have been impacted by “natural disasters” this year. Texas, a state for semiconductor production in the United States, was hit by a rare blizzard in February this year, which froze the natural gas pipelines and led to power outages across the state. This strained the power supply and decreased production capacity. Renesas, the world’s third-largest automobile chip factory in Japan, suffered from a sudden fire at the end of March, which temporarily stopped the production. In June, Malaysia’s epidemic control measures stroke a blow to the production capacity of a variety of passive devices required for chip production.

Affected by chip shortage, many automakers face the problem of wholesales being higher than production. SAIC Motor said that due to global chip shortage in the auto industry, its wholesales lag behind retail sales, and the lower wholesales are mainly due to low production. It is expected that the strain on chip supply will ease from Q3 and SAIC Motor will accelerate the pace of production to increase the wholesales.

However, as the cycle from chip design to production is quite long, the newly added chip manufactures cannot solve chip shortage in the short term. The China Association of Automobile Manufacturers said that “the survey made by the association shows that chip shortage in Q2 is more serious than in Q1, which exceeds the association’s estimate at the end of last year”.

In the long run, chip shortage will continue to limit the release of auto production capacity, and supply will continue to fall short of demand in the auto industry. However, according to industry insiders, as the global chip production capacity has been tilted towards automobiles, and as the production capacity of some original equipment manufacturers for automotive-grade wafer has been released, the needs restrained by long chip production cycle will be gradually digested over time. It is estimated that chip production in auto industry will improve in the latter half of this year and is expected to return to normal in mid-2022.

(Source: CCPIT/www.chinatradenews.com.cn)