Hit by a COVID-induced demand shock in mid-2020, carmakers slashed orders for vehicle components, including chips. Semiconductor foundries prioritized production for consumer electronics. But with auto demand bouncing back quickly and the global semiconductor industry suffering from a capacity shortage. Carmakers are now scrambling for chips. [Source]
What Caused the Shortage?
On September 26th, the US Department of Commerce told companies that exports to Semiconductor Manufacturing International Corporation (SMIC) posed an “unacceptable risk” of being diverted to “military end-use” and imposed sanctions on China’s biggest chipmaker. The move was designed to cut off or limit SMIC from crucial US software and chipmaking equipment. Companies now require licenses to export such products to SMIC. [Source]
Although smaller in production capacity than other top players like TSMC Samsung, and Global Foundry, SMIC sanctions still represent a significant cut in global ic foundry capacity. The rising demands from the consumer electronics and automotive sector combined with the Biden administration’s prospect of continuing with many of the sanctions [Source] are driving semiconductor product inventory up across the board.
Unintended Consequence
According to OICA, 92 million cars are produced in 2019 across the world. The industry has also witnessed improvements in 3D mapping applications, EV batteries, and augmented-reality technologies, such as head-up displays. Moreover, 5G networks are enabling the next generation of mobility solutions in the sector. ADAS (Advanced Driver Assistance Systems) sales are expected to flourish in the future. Auto supply chains run on lean inventory and just-in-time manufacturing doctrines. Due to semiconductors short supply, Volkswagen, Daimler, Ford, Subaru, Toyota, Honda, Nissan, and Fiat Chrysler have announced production cuts [Source]. Some workers are already being furloughed.
The Response
European and American automakers have approached Taipei for help. Germany’s economic minister wrote to Taiwan’s economic ministry, saying: “I would be pleased if you could take on this matter and underline the importance of additional semiconductor capacities for the German automotive industry to TSMC.” Taiwan’s economic ministry is running interference and asking chipmakers to pivot to cars. US automakers say they’re coordinating with the Biden administration. [Source]
Semiconductor industry association SEMI has called on US president Joe Biden’s administration to reassess export restrictions slapped on China in 2020. The group wrote in an open letter this week. [Source]
TSMC and other Taiwanese chipmakers are considering increasing prices for automotive chips.
Price increases of up to 15 percent are being mulled by TSMC automotive chip subsidiary Vanguard International Semiconductor among other chipmakers, including United Microelectronics Corp. Hikes are expected between late February and March. [Source]
So, What Now?
The Biden administration claims it is approaching U.S.-China relations with ‘patience.’
It will take time for Biden to roll back any (if possible) legacy sanctions from the previous administration due to the US’s political climate. The new Secretary of State Antony Blinken has suggested there won’t be a softening of the US’s stance. He has called China “the most significant challenge to the US.” At his confirmation hearing earlier this month. The new Secretary of Defense Lloyd Austin has called China the “most concerning competitor” for the US. [Source]
All of which will further enhance China’s determination of chip independence, emboldening local Chinese players to invest in, innovate, and acquire semiconductor technologies in the coming years. Shanghai just added advanced chip production to its 2021 priority list Authorities did not elaborate on what foreign technologies would be needed to achieve 12-nm mass production or which companies will take the lead, but SMIC will likely be put in charge of the project. [Source]
