Semiconductors pose an unwelcome roadblock for carmakers

Rethinking supply chains for the electric era | Business

8/4/2021 12:01:00 PM

A shortage of semiconductors has left car firms unable to install the complex electronics that control entertainment systems, safety features and advanced driving aids

Rethinking supply chains for the electric era | Business

THE SUDDEN unavailability a decade ago of cars in “tuxedo black”, “rugged brown” or “royal red” highlighted the vulnerability of the industry’s global supply chain. The abrupt closure of the only factory making a vital pigment because of its proximity to the tsunami-hit Fukushima nuclear plant in Japan affected most of the world’s big carmakers. A side-effect of a global pandemic has denied carmakers a more vital component.

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A shortage of semiconductorshas left car firms unable to install the complex electronics that control entertainment systems, safety features and advanced driving aids. Many have cut assembly-line shifts. Some have temporarily closed factories. Ferdinand Dudenhöffer of the Centre Automotive Research, a German think-tank, estimates that the bottlenecks will dent worldwide production in 2021 by 5.2m cars, to 74.8m. Ford’s net profit fell by half in the second quarter, year on year, mainly owing to the chip crunch. Jaguar Land Rover expects sales in the three months to September to be 50% lower than planned. On August 3rd

, created by the merger of Fiat Chrysler and PSA, which owns Peugeot and Citroën, said it would make 1.4m fewer cars in 2021 than expected. (A big Stellantis shareholder is a part-owner ofThe Economist’s parent company.) Though car bosses agree the worst is over, shortages are likely to dent output in 2022.

The dearth of chips is a consequence of the pandemic, which boosted demand from makers of electronic devices for those stuck at home during lockdowns. Car firms also underestimated the rapid pace of recovery this year. Expecting weak sales, in 2020 they pared back orders. Although carmakers spent $40bn or so on chips in 2019, that accounted for only a tenth of global demand, which puts them low in the semiconductor pecking order. This makes orders hard to reinstate.

Established car firms also long ago outsourced development of most technology, including electronic subunits, to big suppliers. These “tier 1” suppliers, such as Germany’s Bosch or Denso of Japan, buy circuit boards and microcontrollers to make components from suppliers in the next tier down, which in turn buy semiconductors from chipmakers. This has kept chip firms and car firms at arm’s length. Deloitte, a consultancy, talks of a “lack of visibility up and down the value chain”.

Carmakers’ initial response has been to make more vehicles that require fewer chips, or to use the scarce resources to build their most profitable models. In the long run, the changing nature of the car will force them to think more creatively. Fully electric cars are packed with twice as many chips by value than fossil-fuelled ones, says KPMG, another consultancy. As Pedro Pacheco of Gartner, yet another firm of consultants, points out, software will become a significant source of profits as cars move from a disparate collection of chips to a centralised “brain” connected to the internet that can be updated remotely. In 2019 Tesla made an average of nearly $1,200 per vehicle from selling software updates, Mr Pacheco notes.

To ensure that the hardware woes don’t stymie this ambition, carmakers may need to take another leaf from Tesla’s book. The Californian firm has been designing its own chips since 2016, which lets it launch new software-enabled features quickly. Volkswagen’s boss, Herbert Diess, has said that the German giant will develop its own chips and software for autonomous driving: “Software and hardware have to come out of one hand.”

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E aqui no Brasil, a dupla presidente & ministro da economia mais incompetente da história do país, fecham a Ceitec, única fabricante de semicondutores da América Latina. With Britain selling it's Semiconductor expertise & industry to the Chinese expect more shortages as the Chinese push Chinese products! Black cabs went to a Chinese firm for spare parts that suddenly became unreliable ? This caused the sale of Black cabs that Chinese firm bought!

...what? worry? Massive rebound on the way for semiconductor industry.

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