The semiconductor shortage and its impact on auto production “will get worse before it gets better,” Ford Motor CEO Jim Farley said this week. He told investors that the second quarter will be the low point for the year with a full recovery possibly stretching into 2022.
The comment was mostly mirrored by executives for Volkswagen and Mercedes-Benz who have weathered the past few months of chip shortages only to be facing added supply problems from a fire at the Naka 3 Renesas fab in Japan on March 19 and the Texas ice storm in February that led to power outages for Austin fabs run by Samsung, NXP and Infineon Technologies.
A VW spokesman told The Wall Street Journal that the second quarter will be more demanding than the first because of the Texas power outage and the Renesas factory fire.
*Renesas has an important role in supplying chips for the auto sector. A spokesperson on Friday told Fierce Electronics that Renesas accounts for about 30% of the global market for auto microcontroller units.
Farley had said Renesas supplies about two-thirds of all chips for the auto industry, including chips for nine Tier 1 suppliers to Ford, according to a transcript by The Motley Fool. Renesas clarified that its correct market share is about 30%.
Renesas expects the Naka 3 facility will be at full capacity in July, Farley said. On April 19, Renesas reported it was aiming to recover 100% capacity a month earlier, by the end of May.
Samsung reported this week that its Line S2 fab in Austin suspended operations on Feb. 16 with the power outage associated with the Texas storm but returned to normal operations by April 1. The South Korean company expects to expand chip supplies in the second of the year with mass production at a Pyeongtaek Line 2 facility.
Ford expects the chip shortage to cut $2.5 billion from adjusted pretax profit in 2022 and will force it to cut second-quarter production in half. “Estimates project the full recovery of the auto ship supply will stretch into the fourth quarter of this year and possibly even into 2022,” Farley told investors.
Some chipmakers have said it could take until 2023 for chip supplies to stabilize with demand for all industries, not just autos. Nvidia CEO Jensen Huang said on April 13 that he doubts the chip shortage will be a real issue in two years. “The industry recognizes this and will build out the necessary capacity,” he said.
Nvidia doesn’t manufacture chips but is designing sophisticated semiconductors that will be used in future vehicles that will be fabricated mainly in Asia.
Without doubt, the chip shortage has been a major wake-up call for multiple industries, not only chipmakers and automakers. Farley noted that most of the chips it uses from the Renesas facility are dual-sourced. The sudden demand for more cars last fall meant it would take up to six months to produce chips for cars and chipmaking equipment used to make car chips for power trains and other components was often in short supply.
Farley said Ford has been working the shortage issue 24/7 “and engaging with key political leaders and decision makers globally” as well as the supply chain.
He also laid out a case for more government support, saying Ford has found the White House and new cabinet “engaging, accessible and responsive.” He indirectly endorsed infrastructure spending that is contained in the $2 trillion plan forwarded by the Biden administration.
“We look forward to a continued close working relationship [with Washington] as the country formulates policies to facilitate the transformation…and finally address infrastructure deficits,” Farley said. “As you would expect, we’re committed to learn from this crisis to be a much stronger company. We’re taking this opportunity to revamp our supply chain and eliminate vulnerabilities down the road.”
“This is especially relevant as we consider not only semiconductors, but also battery cells and other commodities,” he added.
*The market share of 30% for Renesas was an update to the original version of this article.