It’s now some 7 months since the US CHIPS and Science Act passed into law. It offers $52.7 billion in federal funding to semiconductor research, development, and manufacturing, with the hope that this will unlock hundreds of billions of additional private sector funding. The aim, as noted in a White House fact sheet, is to “strengthen American manufacturing, supply chains, and national security, and invest in research and development, science and technology, and the workforce of the future to keep the United States the leader in the industries of tomorrow, including nanotechnology, clean energy, quantum computing, and artificial intelligence.”
Since its announcement, plans to put in similar government subsidies for the semiconductor industry have been started in many other regions, including Japan, Korea and the European Union. All are ostensibly looking to de-risk the supply chains that crumpled under the impact of COVID – but also seeking to ensure that they have a viable ecosystem well outside of the influence of Beijing.
Automotive to the Back of the Queue
Automotive was arguably one of the hardest hit industries during COVID. Light vehicle production in 2020 slumped by 16% – a steeper decline than that experienced during the 2008/9 financial crash. Car sales and production halted in many parts of the world for a period, so it seemed only reasonable to the auto industry that semiconductor purchasing should also come to a halt. Then, when things picked up, the automotive industry, from its perspective “found itself at the back of the queue” for capacity. That capacity was now gone. It had been given over to the meet the rush of demand for devices to entertain us and allow us to work at home during lock-down.
However, that phrase “found itself at the back of the queue” is a contentious one. From the perspective of a foundry, it is more that automotive “put itself at the back of the queue”. This has been made amply clear to TechInsights automotive team members during discussions with those involved from the foundry side.
A Feeding Frenzy that Left Many Hungry
When production started up again, a feeding frenzy placed excessive strain on automotive-specific semiconductor technologies, especially those based on older process nodes e.g., 28nm, 40nm etc. The fabs running these processes had typically not been upgraded so they filled up very quickly. With little overhead, these facilities have continued running at full capacity leading to significant bottlenecks and forming one of three contributing factors that resulted in the automotive semiconductor shortage.
While supply of these more mature products started to close the gap with demand in the second half of 2022, the push towards electrification provided the other two contributing factors to the semiconductor shortage. As automotive OEMs started to follow early leader Tesla into electrification, the premium sector became the primary target as companies looked to retain profitability amidst the significantly higher costs associated with the electrified powertrain. The push to premium sector vehicles brought with it, a near doubling of semiconductor content compounding the bottleneck even as overall production volumes remained low.
The third contributor centred around electrification plus the associated trends around ADAS/automated driving, infotainment systems, connectivity, domain, and zonal/centralized architectures. This shifted focus towards higher performance and specialized semiconductor requirements that were not in place prior to 2021. This rapid shift in focus continued to represent a supply-demand imbalance that continued to be worked through in 2022 and were expected to rollover into 2023.
TechInsights Powertrain, Body, Chassis and Safety clients can see
Automotive Semiconductor Demand Forecast 2020 to 2029 – Q4 2022 Executive Summary for more analysis on the automotive semiconductor shortage dynamics and the
Automotive Semiconductor Industry Performance Snapshot: Q4 2022 for a view of the health of the automotive semiconductor industry.
The CHIPs Act Alone Won’t Fix Automotive Supply Issues
The hope that the CHIPs Act, and its counterparts elsewhere, will solve future automotive supply issues is thus, largely, a forlorn one. The US auto industry did not run out of chips because they weren’t being made in the USA. It ran out because it stopped buying them, misjudged its influence and importance, and then acted surprised when it wasn’t given the red-carpet treatment back to the front of the queue.
The CHIPs Act, over time, will take some of the geopolitical risks out of the semiconductor industry supply chain. But only a closer, more open and trusting relationship between the auto industry and its semiconductor supply base can ensure that such parts shortages never happen again.