Electronic Supply Chain industry research from the Z2Data Team

The Automotive Chip Shortage: Will It End in 2024?

Industry insiders predict the automotive semiconductor shortage may last until 2024. What are chipmakers and automakers doing to combat the shortage?
by
Chase Correll
Published
October 19, 2021

Did you know the average EV in 2021 requires 770 chips, while your average car with an internal combustion engine requires about 560 chips/integrated circuits?

Higher demand, more competition

The arrival of the 5G era, paired with global automotive manufacturers using government subsidies to reduce carbon emissions by adopting electrical/electronic architecture for their vehicles, has heightened the demand for advanced chips in our everyday vehicles.

But it's not just automotive that has increased its demand for these advanced components. Almost every industrial and consumer sector requires semiconductors due to the proliferation of the internet of things (IoT) and advanced technologies.

Due to this struggle for semiconductor supplies, automakers have taken a back seat to other industries—like consumer electronics—who have higher priority in the chip supply chain due to accounting for a greater percentage of chipmakers' profits.

Semiconductor demand drivers by industry for 2018, 2019

According to industry sources, the current shortage of automotive ICs and chips is expected to last until at least 2023 or even 2024.

How automakers are handling the shortage in 2021

Some companies, like Tesla, are handling the shortage quite well. In 3Q21, the leading EV company posted positive sales records due to its additional supply chain partners and strong software and hardware design capability.

Other car companies, like Toyota, have begun developing chips on their own as a way to combat the ongoing chip shortage. The Japanese automaker has teamed up with Denso to develop semiconductors for multiple uses: autonomous driving, ride-sharing applications, and more.

Volkswagen and Hyundai are also beginning development on diverse chips for their vehicles. Yet despite VW's progress in developing its own chips, recent reports from Bloomberg state the German automaker will produce 250,000 fewer cars than planned at its Skoda site. This number has more than doubled since reports from last month about the Skoda site's production, which estimated 100,000 fewer cars to be produced. The cause of the decline in production stems from canceled work shifts leading to unfinished vehicles.

VW isn't the only one struggling

Other veteran automakers, along with factory shutdowns due to Covid, are struggling to strengthen their chip supplies and are under pressure to not be overtaken by ascending startups like Tesla.

Chipmakers trying to increase output, suppliers struggling to meet demand

Renesas Electronics has plans to boost automotive MCU outputs by up to 50% within two years. Meanwhile, Infineon has invested nearly $2.1 billion in capacity expansion while TSMC has goals to boost automotive MCU production by 61% in the coming year.

While chipmakers and international IDMs are looking to ramp up their output for automotive chips and MCUs, many suppliers are still struggling to meet demand. For example, Bosch China—a Tier 1 supplier of automotive semiconductors—said in a media conference on October 13, 2021, that it can only meet the demand for one-half of the semiconductor needs of auto companies.

Bosch purchases semiconductors from chipmakers like STMicroelectronics and Infineon, before integrating the chips and shipping them off to vehicle makers. Severe Covid outbreaks in Southeast Asia remain a primary factor in the ongoing supply shortage. Dr. Chen Yudong, President of Bosch China, said the following about supply rates for automaker chips: "It is currently impossible to meet all market needs. A shortage of 10% to 20% will be the norm."

Automotive IDMs Issue Chip Price Increase

Starting in 2022, automotive IDMs will issue 10-20% price hikes for their chips. The following IDMs have already issued statements on price increases:

  • Infineon
  • Renesas
  • NXP
  • TI
  • STMicroelectronics

And to add to the troubles, China's power supply cuts have jeopardized magnesium supplies for the automotive industry: as China produces 85% of the global magnesium supply. Magnesium plants in Shaanxi have cut production due to power restrictions, while magnesium inventories in Europe are running dry. While the current supply shortage with chips is dominating the news, mechanical components may be the next commodities to see a rise in scarcity.

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