Chip shortage is starting to have major real-world consequences

Risks and costs of chip making shifted to automakers

In recent years, the shortage of semi-conductor chips forced various automakers to scrap production. While chip makers were in “war room operations” managing the shortages. As automakers get more involved in the chip-making process, the risk and some part of the costs are also shifted towards them.

Chip shortage is starting to have major real-world consequences
Image credits- CNBC

Newly created teams at the likes of General Motors, Volkswagen, and Ford Motor are negotiating directly with chipmakers. Automakers like Nissan Motor and others are accepting longer order commitments and higher inventories. Key suppliers including Robert Bosch and Denso are investing in chip production. GM and Stellantis have said they will work with chip designers to design components.

Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on work in chip development, and more capital commitment in exchange for better visibility in their chip supplies, executives and analysts say.

It is a U-turn for automakers who had previously relied on suppliers – or their suppliers – to source semiconductors. For chip makers, the still-developing partnership with automakers is a welcome – and overdue reset. Many semiconductor executives point the finger at automakers’ lack of understanding of how the chip supply chain works – and an unwillingness to share cost and risk – for a large part of the recent crisis.

Costly crisis

The costly changes are coming together just as the auto industry appears to be moving past the worst of an even more costly crisis that by one estimate has cut 13 million vehicles from global production since the start of 2021. C.C. Wei, chief executive of the world’s biggest chipmaker Taiwan Semiconductor Manufacturing said he had never had an auto industry executive call him – until the shortage was desperate.

“In the past 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. One automaker called to urgently request 25 wafers, said Wei, who is used to fielding orders for 25,000 wafers. “No wonder you cannot get the support.”

Thomas Caulfield, GlobalFoundries chief executive, said the auto industry understands it can no longer leave the risk of building multibillion-dollar chip factories to chipmakers. “You can’t have one element of the industry carry the water for the rest of the industry,” he told. “We will not put capacity on unless that customer is committed to it, and they have a state of ownership in that capacity.” Ford has announced it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that are in the pipeline with other car makers.

Credits- Reuters