Electronics trade group warns lead times will grow for components amid global chip shortage

Among the various reasons cited for the auto chip shortage is a lack of investment in 200mm wafers used in the chipmaking process. ECIA cited volatile demand with the long lead time needed to make chips. (Getty Images)

The Electronics Components Industry Association, a major trade group, warned Wednesday that lead times will grow for obtaining a broad range of electronic components amid a severe global chip shortage that has temporarily shuttered auto manufacturing plants.

A variety of auto and semiconductor companies have predicted the chip shortage will ease by the summer with a bumpy road until then.  However, the chip shortage has hurt some carmakers more than others. Toyota on Wednesday told investors it is confident it can secure enough chip supply with a stockpile of several months’ worth of parts.

“We are providing fairly reliable production volume on a monthly basis, as well as a production plan going out three years into the future,” Toyota CFO Kenta Kon said. He also predicted the chip shortage will ease sooner than the summer.

Meanwhile, General Motors on Tuesday blamed the chip shortage for causing GM to shutter three car plants for more than a month.

RELATED: Chip shortage causes GM to extend three vehicle plant shutdowns to more than a month

In its warning, the ECIA trade group said, “As demand for electronics and electronics components grows in 2021, it is anticipated that supply chain pressure will build. Recent ECIA research and analysis has identified extending lead times for a broad range of electronic components.”

Chip shortages are “causing widespread problems across many markets” partly due to insufficient investment in 200 mm wafers used in producing chips for vehicles and other products, the ECIA said.

In a position paper issued Wednesday, ECIA CEO David Loftus said the auto chip shortage has stemmed from a “lean and demanding” approach from carmakers for electronics supplies for vehicles.  “Just-in-time manufacturing works great in a steady state environment,” he said. “Unfortunately, with long-lead items like semiconductors, when demand is volatile, as it has been in the past 12 months, the accompanying supply chain cannot react instantaneously.”

The trade group cited insights from analysts that while major foundries still produce 200 mm wafers, significant amounts of production have shifted to 300 mm wafers.  Levels of 200 mm capacity have become constrained and large foundries like TSMC have been slow to add new 200 mm capacity.

“As demand for automotive electronics has rebounded, the shortage of chips produced on 200 mm wafers has become much more acute,” according to research ECIA cited by Joel Huskra in an article published in December.  The typical car requires 50 to 150 semiconductors.

Huskra also said automakers have difficulties securing chips because of the lower priority they receive from semiconductor manufacturers.

Kevin Anderson, an analyst at Write-Tek, told Fierce Electronics that advanced technology auto parts are produced by TSCM, but the large auto semiconductor makers are not large customers of TSCM. “When [demand] starts to turn up and people go looking to gain extra wafer starts they don’t have the same kind of leverage at TSMC as Apple or Media-Tek,” he said.

On the other hand, auto semiconductor makers could negotiate a larger capacity reservation with TSMC, “but they have to be careful to not hold too many parts because if the market goes down they could be left with obsolete parts at the end of the model year when new designs and newer semis are needed,” Anderson added.

Most carmakers have strong relationships with auto chip suppliers but don’t buy direct from them and use a Tier 1 supplier instead.  If other car companies were to follow Toyota’s approach, they would need to request a larger buffer inventory. “The Tier 1s would push back on the cost of that,” Anderson said.

“Even with the Toyota model, it is difficult to keep 90 days of stock on hand as production levels fluctuate,” he said.