Chip, Automotive Industries to Collaborate on Forecasting
The electronics supply chain has so many foibles that sometimes procurement experts are confounded by its intricacies. Automotive OEMs earlier this year got a crash course on the semiconductor lifecycle when microcontrollers and other chips became scarce.
Component shortages have escalated well beyond semiconductors and the chip scarcity could last years, according to Intel Corp. The automotive situation is so dire that carmakers have suspended production and sought government intervention.
There are multiple reasons for the “perfect-storm” chip deficit of 2021 – Covid-19, capacity constraints, low inventories and uncertainty leading to flawed forecasts. What it boils down to, said Bettina Weiss, who heads up the Smart Mobility initiative for SEMI, is a lack of transparency between car makers and the original component makers (OCMs) that supply them. The situation demonstrated the need for constructive dialogue and collaboration along the entire supply chain to better understand industry cycles and inform inventory planning.
Carmakers were seeking better supply-chain visibility even before the pandemic upended global supply lines. SEMI and the Center for Automotive Research (CAR) have since signed a memorandum of understanding to advance collaboration between the semiconductor and automotive industries. This could mitigate the effects of a sudden shift in chip demand.
The MOU lays the foundation to connect microelectronics manufacturing and design stakeholders with the automotive and mobility ecosystems through programs and events that advance both industries, SEMI said in a statement. The initiative builds on SEMI’s Smart Mobility project, which fosters collaboration across the global automotive electronics supply chain.
Limited visibility is a common gripe across the electronics supply chain. The auto industry’s structure further distances carmakers from components. Traditionally, said Weiss, Tier-1 automotive suppliers drove – and managed – carmakers’ chip demand. The role of first-tier vendors in the vehicle market has since expanded and the electronics supply chain has become more complex. Second- and third-tier suppliers play an essential role in semiconductor manufacturing, but communication with OEMs and Tier-1s still needs to be more frequent and more direct.
Data sharing with multiple tiers of suppliers can head off unpleasant surprises. For example, a fire that occurred at a Taiwanese substrate factory in late 2020 is still impacting global chip production. Unimicron is a sole source for many chip companies and few substrate alternatives are available. Even if they were, vetting a new supplier for an approved vendor list takes months. Few OEMs have visibility beyond Tier-1.
The benefits of the SEMI-CAR pact are self-evident. “SEMI would like visibility into the auto industry, and we’d like to get a handle on the semiconductor industry,” said Carla Bailo, CAR’s president and CEO. “This is the right time to collaborate.”
Electronics are not new to the car industry, but the volume and sophistication of the devices used in vehicles has skyrocketed. The global automotive semiconductor sector was valued at $48.13 billion in 2020 and is expected to reach $129.17 billion by 2026, according to Mordor Intelligence. One immutable fact about semiconductors is they take a minimum of 18 weeks to produce. Coupled with the lean inventory practices of the supply chain, there’s no quick fix for sudden spikes in demand.
“I’ve seen one estimate that says a chip travels 25,000 miles during processing in different regions of the world,” noted Bailo.
The chip deficit is expected to cost the global automotive industry $110 billion in revenue in 2021, according to consulting firm AlixPartners. To be fair, all business forecasts in 2020 carried a Covid disclaimer and automotive was no different.
“When the pandemic happened car makers took their forecasts way down,” said Bailo. “Nobody knew when the recovery would hit. In the meantime, demand from consumers for IT and related equipment went through the roof. Semiconductors were shifted toward those products.
“It’s not that easy to switch supply when demand comes from somewhere else,” she added.
It’s not that easy to expand capacity either. Semiconductor fabs take years and billions of dollars to build. Foundries, such as TSMC, have long-term relationships with customers that book capacity in advance. There’s no quick fix for a chip shortage.
“The notion that an automotive plant would have to stall production because they can’t get a microcontroller is alarming,” said Weiss.
Having automakers, suppliers and semiconductor manufacturers work together more closely will add visibility into supply and demand trends, SEMI said. “The result is intended to help connect larger cross-sections of the supply chains and minimize the impact and risk of future chip shortages and over-supply.”
Both industries see the pact as an opportunity. “This [MOU] has given rise to an opportunity that benefits both industries, bringing stakeholders from both sides together in a collective approach to address global challenges such as the current chip shortage,” said Weiss.
As technology evolves, the automotive industry will become more semiconductor-intensive – advanced safety features, electric vehicles, powertrain controls, automated driving, telematics and infotainment all drive rapidly increasing auto chip demand, added Bailo.
CAR is a nonprofit organization that conducts research and analysis into critical issues facing the automotive industry, and the industry’s impact on the U.S. economy and society. The chip shortage has had an escalating effect on the economy as workers are laid off. The Bureau of Labor Statistics said the U.S. motor vehicle and parts sector lost 27,000 jobs in April.
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