The continuing auto chip shortage has caused automakers to shut assembly lines temporarily around the globe, including General Motors and Ford recently.
IHS Markit said the widespread problem could impact production of 672,000 units of global light vehicles in the first quarter. On Tuesday, 15 U.S. senators—mainly from auto states-- called on the White House to work with Congress to address the shortage.
So what went wrong?
Analysts generally believe automakers didn’t expect such a strong demand for new cars in the fourth quarter of 2020 after many assembly lines had been shut down in the spring over the pandemic.
When those car companies then made their orders for chips, many semiconductor makers said they were full-out making chips for PCs, servers and other products and that it might take months to get back to retooling chip factories to make chips for cars.
Some analysts have predicted the chip supply constraints seen at automakers might ease by June.
One car executive complained to an analyst this week, “Why should I slow down my assembly line for a $6 or $8 chip?” That analyst, C.J. Muse, head of semi research at Evercore ISI, said the critical role chips play in modern cars now has some automakers thinking they may need to create a buffer inventory of chips. The auto “business is not going to be as lean and they may spend more money,” he said during a virtual presentation sponsored by the Semiconductor Industry Association on Thursday.
Dale Ford, chief analyst at Electronic Components Industry Association, said some carmakers are considering applying artificial intelligence to help supply chain managers better anticipate better the different factors that affect chip supplies. “Instead of key performance indicators, it will be key performance predictors,” he said.
“There’s the ability to use AI. We will find better solutions to deal with black swan events” like the pandemic and its fallout, Ford said.
SIA is currently conducting a study on the global chip supply chain problems that will be published in about a month.
The auto chip supply crisis has been complicated because auto chips are specific to each carmaker and each car model and the overall volume of car chips is relatively low compared to chips for smartphones. As a result, “the lack of a low cost semiconductor can hold up entire production of autos,” Ford said.
Some foundries like TSMC are large enough to react and are taking steps to prioritize auto chips “but they can’t sacrifice their other customers,” Ford added. “You can’t throw up a chip fab overnight. It won’t be a near-term solution.”
Across chips for all industries, not just autos, the analysts on the SIA event agreed that more semiconductor capacity is coming online because fabs are spending more on capital equipment this year that will be used to make chips.
“The future is bright,” Ford said. “I’m an optimist. What drives growth is difficult. How many anticipated the smartphone?”
Semiconductor sales increased 6.5% to $439 billion in 2020, which followed a down year in 2019, according to the SIA based on World Semiconductor Trade Statistics. Fourth quarter sales were up by 8.3% year-over year.
Andrea Lati, an analyst at VLSI Research, said his data put sales somewhat higher, at $466 billion in 2020, an 8% increase over 2019. He projected sales will grow to $522 billion in 2021, a 12% increase year-over-year.
Auto production cuts reached 30% in March, followed by a “super shutdown in April, and we’re seeing the consequences today” in the chip shortage, he said.
Lati noted that there is a lot of pent-up demand for chips coming in 2021, not just for autos. About 200 million 5G smartphones were made in 2020, a number expected to reach 500 million in 2021. A 5G smartphone also has 50% more silicon components than previous phone generations.
Ford at ECIA projected semiconductor sales will grow at an average annual rate of 5.5% over the next 15 years, meaning sales could reach $750 billion by 2030 and $1 trillion by 2036. He even suggested a wave of growth “beyond the four-year cycle to a super cycle.”
“$1 trillion by 2036 is great if you ask me,” said Falan Yinug, director of industry statistics at the SIA.