Is the End of the Chip Crisis in Sight?

Leading automotive chip manufacturers such as NXP Semiconductors and Infineon predict that the chip shortage will persist despite increased production. An ongoing uncertainty factor is the coronavirus pandemic and its impact on supply chains.

Infineon reported that the balance between supply and demand for some chips is expected to improve in the second half of this year, but the market for mature chips - crucial for automotive manufacturers - would remain tight. The semiconductor manufacturer fears that the spread of the COVID-19 variant Omicron could prompt China, with its zero-COVID strategy, to close factories and restrict supply.

"The supply constraints are far from being overcome and will persist well into 2022," said Reinhard Ploss, CEO of Infineon, during an investor call.

NXP stated that the industry would not come out of the imbalance between supply and demand this year. Semiconductor manufacturers have an incentive to focus on the latest, most expensive chips. There will be significant supply shortages for so-called "legacy nodes," which are the less sophisticated chips used in power management and display devices.

Chip Manufacturers Expect Relief Only from 2024

Building a chip factory takes several years, and it takes another two years to reach maximum capacity. The company STMicroelectronics, a European semiconductor manufacturer headquartered in the Canton of Geneva, reported that it would take until 2024 or 2025 to see a significant increase in capacity.

"There are a few fabs that will come online towards the end of the year that will help these markets, but not solve the problems completely," said Peter Hanbury, partner at consulting firm Bain & Company.

Huge Production Losses for Automakers

The American financial consulting firm AlixPartners estimated the revenue losses of the global automotive industry in 2021 at $210 billion (about €184 billion) and production losses at around 7.7 million vehicles. For the year 2022, vehicle manufacturers are more optimistic.

During their quarterly reports, GM CEO Mary Barra forecasted that the semiconductor shortage would decrease in the second half of the year, Ford expects a significant improvement in the second half of the year after a low in vehicle sales in the first quarter, and Hyundai hopes that chip supply will return to normal levels in the third quarter of this year.

Ford brings chip production back to America

Ford has teamed up with US chip manufacturer GlobalFoundries to reduce dependence on Taiwanese semiconductor manufacturer HTSMC for older technology chips.

"We are very dependent on TSMC for our feature-rich nodes. Obviously, capacity is at risk over time as the industry moves to more advanced nodes, including us," said Ford CEO James Farley during a conference call.

Ford is spending a lot of money to source these node chips from American chip manufacturers in the future. However, according to Farley, this will take some time.

"We have painfully learned the lesson that we cannot currently manage the supply chain for these key components as we have in the past," he said, adding that the supply chain is crucial for the transition to vehicle electrification and digitization.