The computer chip shortage that forced global automakers to scrap production plans for millions of cars over the past two years is easing, at a new and ongoing cost to car companies.
What had been “war room operations” to manage chip shortages are becoming integrated features of vehicle development, executives from both industries say. That has shifted the risks and some of the costs onto automakers.
Start-up teams at Volkswagen and Ford are dealing directly with chipmakers. Automakers like Nissan and others are agreeing to longer order commitments and higher inventories.
Key suppliers including Robert Bosch and Denso are investing in chip production. Stellantis, which owns brands including Peugeot, Fiat and Opel, said it would work with chip designers to design components.
Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on chip development work and more capital commitment in exchange for better visibility into its chip supplies, executives and analysts say.
It’s a U-turn for automakers who previously relied on suppliers, or their suppliers, for semiconductors.
For chipmakers, the still-developing partnership with automakers is a welcome and overdue reset.
Many semiconductor executives point to automakers’ lack of understanding of how the chip supply chain works, and unwillingness to share costs and risks, during much of the recent crisis.
The costly changes are coming just as the auto industry appears to be overcoming the worst of an even costlier crisis that, by one estimate, has knocked 13 million vehicles out of global production since the start of 2021.
CC Wei, CEO of the world’s largest chipmaker Taiwan Semiconductor Manufacturing, said he had never received a call from an auto industry executive until the shortage became desperate.
“For the last two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. An automaker called in an urgent request for 25 wafers, said Wei, who is used to receiving orders for 25,000 wafers. “It’s no wonder you can’t get the support.”
Thomas Caulfield, CEO of GlobalFoundries, said the auto industry understands that it can no longer leave the risk of building multibillion-dollar chip factories to chipmakers.
“One element of the industry cannot be allowed to carry the water for the rest of the industry,” he said. “We won’t put capacity in unless the customer commits to it and has ownership status on that capacity.”
Ford has announced that it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that were in the works with other automakers.
Working more closely with automakers and their suppliers has brought Onsemi nearly €4 billion in long-term deals for power management chips made from silicon carbide, a new material that is gaining popularity, the chief executive said. Hassane El-Khoury. “We’re investing billions of dollars every year to scale that operation,” he said. “We are not going to build factories on hope.”
Michael Hurlston, chief executive of Synaptics, whose chips power touch screens, which had delayed some car production, said recent more direct collaboration with automakers could create new business opportunities and manage risks.
Hurlston said the auto industry had become accustomed to using OLED screens, which are less durable than LCD screens, a factor many perceived would limit their use in cars despite better contrast and lower power consumption.
“But that perception has changed quite dramatically in the last two years. And that perception has changed as a direct result of us being able to talk to [the auto industry],” he said. “The paradigm has really changed for us.”
The chief executives of Japan’s Renesas Electronics and the Netherlands’ NXP Semiconductors said they are placing engineers to help automakers design a new architecture in which a computer would control all functions centrally.
“They have woken up,” said NXP boss Kurt Sievers. “They have understood what is needed. They try to find the right talent. It’s a big change.”
The average content of semiconductors per vehicle will exceed 1,000 euros in 2026, doubling since the first year of the pandemic, according to Gartner. An example: the battery-powered Porsche Taycan has more than 8,000 chips. That will double or triple by the end of the decade, according to Volkswagen.
“We have understood that we are part of the semiconductor industry,” said Volkswagen Group’s Berthold Hellenthal, senior manager of semiconductor management. “Now we have people dedicated just to strategic management of semiconductors.”
Securing — and keeping — chip engineers will be a challenge for automakers, who will have to compete against the likes of Alphabet’s Google, Amazon.com and Apple, said Evangelos Simoudis, a Silicon Valley venture capitalist and adviser. which works with both established automakers. and start-ups. “I think that would lead to acquisitions,” he said.
Unlike Tesla, which designs its own core chips, Simoudis said traditional automakers will have to juggle producing legacy car models as they make new investments.
AutoForecast Solutions estimates that the microchip shortage has forced automakers around the world to remove more than 13 million vehicles from production plans since the beginning of 2021.
“It’s an arrogant industry,” said Sam Fiorani, vice president of global vehicle forecasting at AFS. “Sometimes it just bites them in the rear.”