Global Automotive "Lack of Core Wave"

  "China News Weekly" reporter / Zhao Yiwei

  Issued in the 985th issue of China News Weekly on March 1, 2021

  A chip shortage crisis affecting global auto companies is further intensifying.

  On February 21, Volkswagen Group stated that its world's largest factory in Wolfsburg currently has orders for 93,000 Golf models and is facing the challenge of a continuous shortage of chips.

Since the emergence of the crisis of automotive chip shortage at the end of 2020, car companies such as Volkswagen, Ford, GM, Mercedes-Benz, Nissan, Honda, and Porsche have expressed that they are facing a chip shortage, and some of them have announced short-term production reduction plans due to tight chip supply.

  Globally, the impact of chip shortages on car production is still expanding.

Japan's Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. predicts that the shortage of chips will cause Japanese car companies to reduce production by about 500,000, accounting for 1/3 of the total global production reduction.

Research organization IHS Markit predicts that the shortage of automotive chips may lead to a global production cut of nearly 1 million light vehicles in the first quarter.

Consulting firm Alix Partners believes that due to chip shortages, the automotive industry may lose 61 billion US dollars in 2021.

  As the world's largest market for new car production and sales, China is also plagued by the shortage of automotive chips.

According to data from the China Association of Automobile Manufacturers, China's auto sales in January fell by 15.9% from December 2020, of which passenger car production fell by as much as 18.1%.

The China Automobile Association said that the month-on-month decline in automobile production in January has been rapid, which has reflected that the insufficient supply of automobile chips has affected the production rhythm of enterprises.

  On February 9, the Equipment Industry Division I and the Electronic Information Department of the Ministry of Industry and Information Technology interviewed representatives of major automotive chip supplier companies, suggesting that automotive chip supplier companies attach great importance to the Chinese market, increase production capacity allocation, and improve the efficiency of the circulation link. Downstream companies strengthen coordination and strive to alleviate the tight supply of automotive chips.

  "There has been a global shortage of automotive chips. The shortage will continue to exist in the first half of this year, and it will not be alleviated until at least the third or fourth quarter." Xu Haidong, deputy chief engineer of the China Association of Automobile Manufacturers, told China News Weekly "From the current level of technology, the domestic substitution of automotive chips may have to wait three to five years, and continuous research and development and updates are needed."

"Chip shortage" worsens the situation

  As early as the second half of 2020, the global automotive chip shortage caused by the epidemic has begun to emerge.

In the past six months, under the superimposed effects of factors such as the recovery of the auto market, the conversion of factories, and natural disasters, auto chips have begun to be in short supply, which has made the "chip shortage" faced by auto companies even worse.

  According to the current application of chips in automobiles, automobile chips are mainly divided into three categories: the first category is responsible for computing power, such as automatic driving systems and engine, chassis and body control, etc.; the second category is responsible for power conversion, such as power supply and interface, etc.; The third category is sensors, such as automotive radar, airbags, tire pressure detection and so on.

In this round of chip crisis, the shortage of chips is mainly concentrated in high-end chips such as electronic stability programs and electronic control systems.

In the Chinese market, generally models of more than 100,000 yuan, especially mid-to-high-end models, will be equipped with these two types of chips.

  Affected by the new crown pneumonia epidemic, the global auto market fell into a trough in the first half of 2020. As a result, auto companies have drastically reduced their orders for auto chips. Major global chip suppliers have reduced production capacity or shut down factories, and auto chips have begun to reduce production significantly. .

  At the same time, due to the rapid increase in demand for consumer electronic devices such as mobile phones and iPads during the epidemic, the demand for consumer electronic chips has increased rapidly, and some automotive chip production lines have been converted to the production of consumer electronic chips, further reducing the production capacity of automotive chips.

  “For chip manufacturers, the production requirements for consumer electronics chips are lower and the profits are higher. The increase in the production capacity of consumer electronics chips means that the production capacity of automotive chips is squeezed.” Xu Haidong told China News Weekly, “In demand Due to various factors such as production requirements, profits, and other factors, many chip manufacturers have converted their automotive chip production lines into consumer electronics chip production lines. This is also one of the reasons for the outbreak of automotive chip shortages."

  In the second half of 2020, the global auto market began to recover steadily, especially the rapid recovery of the Chinese auto market, which quickly promoted a substantial increase in chip demand.

More importantly, with the continuous improvement in the degree of electrification, intelligence, and connectivity of automobiles, the bicycle value of automotive chips continues to increase, which promotes the global demand for automotive chips faster than the growth rate of vehicle sales, which also directly causes chips. The imbalance between supply and demand.

  "After supply and demand changes, the production line needs to be converted again." Xu Haidong said, "It is easy to switch from more demanding car chips to consumer electronics chips. But it is not only difficult to switch from lower demand consumer electronics chips to car chips. , The transition time for conversion is also longer."

  In addition to market supply and demand changes, the continuous extreme weather and natural disasters in early 2021 have further exacerbated the chip crisis.

  On February 13, a strong earthquake occurred in the coastal waters of Fukushima, Japan. Renesas Electronics of Japan, which ranks third in the global automotive chip market share, suspended the production lines of the affected factories there.

On February 16, due to a snowstorm in Texas, USA, power outages caused chip giants such as Samsung Electronics, NXP and Infineon to suspend operations in their local factories in Austin.

Under normal circumstances, chip factories, especially their core equipment lithography machines, need to operate uninterrupted throughout the year.

Affected by the snowstorm, the power supply in Texas is currently in short supply, and it is in a state of rotating power supply in different districts, and production cannot be guaranteed.

  "The shortage of 8-inch wafers is the main reason for the insufficient production of automotive chips." Chen Wenling, chief economist of the China International Economic Exchange Center, believes that "the global shortage of wafers, especially the shortage of 8-inch wafers, has led to insufficient production of automotive chips, which is more impacted. The big ones are mainly mid-to-high-end cars with dense chips."

  "The production line of the chip factory is unique. Even if work is resumed, it does not mean that production can be resumed immediately." Xu Haidong said, "Due to the high precision requirements of chip production, the factory needs to carry out all the process links and steps of the entire production line after restarting the production line. Only by re-adjusting the temperature and data can the production capacity be gradually restored."

Car companies and chip suppliers blame each other

  Due to the shortage of chips, automakers around the world are closing assembly lines, and some automakers' attitudes towards auto chip suppliers have also begun to change.

The Volkswagen Group stated that it has discussed with Bosch and Continental. Because these two chip suppliers cannot solve the current chip shortage and the supply cannot meet the needs of the public, Volkswagen is considering making a claim.

  In Germany, Volkswagen pointed the finger at its suppliers, saying that in April last year, when many car production around the world were suspended due to the new crown pandemic, Volkswagen promptly warned suppliers that it expected a strong recovery in demand in the second half of this year.

A Volkswagen executive said, “We communicated our needs and forecasts at the beginning. If suppliers do not believe our data and refer to their own forecasts, they should notify us immediately, but they did not.”

  "China News Weekly" learned from Volkswagen Group (China) that as early as December last year, the shortage of chips had already affected the production of Volkswagen.

Due to the inability of ESP to produce, the production of approximately 15,000 vehicles was reduced.

Volkswagen expects that the impact of the chip problem will continue in the first half of the year. The group headquarters and suppliers around the world are deploying resources as much as possible and adopting various countermeasures to overcome difficulties.

  Faced with the dissatisfaction of automakers, chip makers said that for a long time, the auto industry has quickly cancelled chip orders when the market was weak, and demanded increased production capacity when the market recovered. This "one advance and one retreat" has become the norm.

In this regard, McKinsey’s partner Ondrej Burkacky said: “The automotive industry has become accustomed to the fact that the entire supply chain revolves around automobiles, but they seem to ignore that semiconductor manufacturers actually have another option.”

  At present, the top five global automotive chip suppliers are Infineon, NXP, Renesas Electronics, Texas Instruments, and STMicroelectronics. These five companies account for about 50% of the global automotive chip market.

Due to last year's epidemic, global auto companies are generally not optimistic about last year's car sales forecast, and auto chip companies have drastically cut orders for chip foundries.

  In fact, even in the current global shortage of automotive chips, the semiconductor industry is not willing to quickly put into production automotive-grade chips.

Due to the low profit margins and obvious accumulation of production capacity of automotive-grade chips, it is not a cutting-edge product line that chip manufacturers are willing to invest in.

Some suppliers said: "If we mass-produce automotive-grade chip products, once car companies cut production capacity, chip manufacturers are doomed to face losses."

  The concerns of chip suppliers are real.

In terms of market size, the automotive industry spends about 40 billion U.S. dollars on chips each year, accounting for about one-tenth of the global chip market.

In contrast, Apple's spending on iPhone chips alone may exceed the total of the auto industry for the entire year.

Only chip suppliers, such as Infineon and Bosch, which dominate the automotive business, are willing to open new factories for automotive chips.

However, even though both companies plan to start production of new chip factories this year, it is still unlikely that the supply shortage will soon ease.

  As the shortage of automotive chips has intensified, chip prices have also risen.

Since the end of 2020, the world's largest chip foundries such as TSMC and UMC, as well as chip manufacturers such as Renesas Electronics, NXP, and STMicroelectronics have issued price increases, with prices increasing by an average of 10% to 20%.

At the same time, chip manufacturers have extended the delivery cycle of automotive chips. Texas Instruments has extended the chip delivery cycle to 36 weeks. NXP and STMicroelectronics have also significantly delayed the delivery cycle of automotive chips.

IHS Markit estimates that the time required to deliver a car-level chip has doubled from 13 weeks to 26 weeks, which puts 1 million light vehicles worldwide at risk of "difficult delivery" in the first quarter of this year.

  "In the short term, there is no quick solution to the shortage of automotive chips." Xu Haidong told China News Weekly. "If the production capacity of automotive chips is built or expanded, it may take more than one to two years. Conversion from existing production lines is Faster solutions, but considering the profit margin, many chip factories are still mainly producing consumer electronics chips, and this is the key to the problem."

Accelerated domestic substitution

  In this round of chip shortage crisis, China, as the world's largest new car production and sales market, has exposed its long-standing dependence on foreign auto chips, and the problem of "stuck necks" has become more prominent.

Under the crisis, domestic chip manufacturers and car companies have realized the importance of self-developed chips and urgently need to develop high-precision chip technology.

  According to iHS statistics, the current global automotive semiconductor market is about 41 billion U.S. dollars, and it may reach 65 billion U.S. dollars next year.

But in terms of market share, European, American, and Japanese companies accounted for 37%, 30%, and 25%, respectively, while Chinese companies only accounted for 3%.

In addition, data from the China Automotive Chip Industry Innovation Strategic Alliance shows that in 2019, China’s independent automotive chip industry only accounted for 4.5% of the world’s total. The domestic automotive chip self-research rate in the domestic automotive industry accounted for only 10%, while China’s automotive chip import rate exceeded 90%, the domestic automotive chip market is basically monopolized by foreign companies.

  "The chip problem cannot be solved overnight." Yuan Chengyin, general manager of China's New Energy Vehicle Technology Innovation Center, said that China's automotive chip shortage may last as long as 10 years.

  It is imminent to accelerate the supply of key auto chip independent supply systems.

In September 2020, led by the Ministry of Science and Technology, the Ministry of Industry and Information Technology, and the New Energy Vehicle Technology Innovation Center as the national common technology innovation platform, more than 70 enterprises and institutions established the "China Automotive Chip Industry Innovation Strategic Alliance", which is working hard to complement the "stuck neck." Shortcomings, and strive to achieve independent, safe, controllable and comprehensive rapid development of the domestic automotive chip industry.

In November 2020, the General Office of the State Council issued the "New Energy Automobile Industry Development Plan (2021-2035)". The "Plan" is clear and will focus on promoting vehicle control operating systems and computing platforms, car-level chips and other autonomous driving technologies and equipment Development.

  Many Chinese car companies are actively deploying car chips.

Horizon is the only technology company in China that has mass production of automotive-grade smart chips. In the recently completed C3 round of financing, there are many upstream and downstream companies in the automotive industry chain, including BYD, Great Wall Motors, Yangtze River Automotive Electronics, and Dongfeng Assets.

At the same time, BYD and Huawei have also begun to use automotive chips. SAIC, GM, Wuling and other automakers have also announced that they will fully promote the localization of vehicle chips.

  "With the current domestic technology level, domestic substitution of automotive chips cannot be achieved." Xu Haidong told China News Weekly, "In contrast, the accuracy requirements of automotive chips are not as high as mobile phone chips. Now the whole industry is working hard. To do chip research and development work, but to fully realize the substitution of imports, we still need constant investment."

  China News Weekly, Issue 7, 2021

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