Lack of small parts disrupts auto factories around the world

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Automakers braced for the crisis when the pandemic struck. They expected supply chain disruptions and slump in sales. But they never thought that a year later one of their biggest problems would be the PlayStations.

Strong demand for gaming systems, personal computers, and other electronic devices from a world stuck inside has depleted semiconductor stocks, forcing automakers around the world to scramble for chips have become as essential to mobility as gasoline or steel.

Virtually no automaker has been spared. Toyota Motor has closed its production lines in China. Fiat Chrysler Automobiles has temporarily halted production at plants in Ontario and Mexico. Volkswagen has warned of production issues at factories in China, Europe and the United States. Ford Motor said last week it was idling a plant in Louisville, Ky., For a week due to the shortage.

When Covid-19 hit, automakers slashed chip orders in anticipation of falling sales. At the same time, semiconductor manufacturers have shifted their production lines to meet growing orders for chips used in products such as laptops, webcams, tablets, and 5G smartphones.

Businesses have also upgraded their digital infrastructure to handle online meetings and employees working from home, while telecom companies have invested in broadband infrastructure, further fueling demand for semiconductors.

Then auto sales rebounded faster than expected at the end of 2020, catching everyone off guard. The resulting chip shortages are expected to last until 2021, as it will take between six and nine months for semiconductor manufacturers to realign production.

“Consumer electronics have exploded,” said Dan Hearsch, managing director of consulting firm AlixPartners. “Everyone and their brother wanted to buy an Xbox, PlayStation, and laptops, while the auto business shut down. Then the automobile came back faster than expected, and that’s where you find yourself in this problem. “

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While the shortage is not expected to cause auto prices to rise sharply, buyers may have to wait longer to get the vehicles they want.

The chip shortage has its roots in the long-term forces reshaping the auto and semiconductor industries, as well as the short-term confusion caused by the pandemic.

Over the past decade, automakers have become increasingly dependent on electronics to enhance the appeal of their products, adding features such as touch screens, computerized engine controls and transmissions, integrated cellular and Wi-Fi connections and collision avoidance systems using cameras. and other sensors.

New cars can have more than a hundred semiconductors, and the absence of a single component can trigger production delays or shutdowns, industry analysts and consultants have said.

Long-term pressure on chipmakers to control production costs also played a role. Semiconductor companies that supply the automotive industry, such as Infineon, NXP Semiconductors, and Renesas, have chosen to have their most advanced chips manufactured for them by outside manufacturing services, called foundries. But manufacturers also maintain their own factories to make simpler automatic chips, frequently making them on eight-inch silicon wafers rather than the 12-inch disks used in more modern factories.

Manufacturers with factories using older eight-inch wafers have not been able to easily increase production. They hadn’t invested much lately in new equipment, which is now harder to find because the technology is older, said Syed Alam, global head of global semiconductor consulting practice at Accenture.

Geopolitics also played a role. The Trump administration in September imposed restrictions on Semiconductor Manufacturing International Corporation, China’s largest smelter, which produces chips for cars and many other applications. Customers of the company have started looking for alternatives, creating additional competition for chip supplies from other foundries, said Gaurav Gupta, vice president of research firm Gartner.

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The chip crisis is one example of how the pandemic has rocked the global economy in unpredictable ways. Automakers expected to face supply chain shortages, and factories closed in early 2020 over fears workers could infect each other, or because trucking companies had ceased to deliver. Most American auto plants went out of production for about two months last spring.

But suppliers and automakers quickly found ways to contain the contagion within factories and revived assembly lines. The impact on most parts supplies has been less than feared.

The semiconductor shortage has moved out of left field, hitting the industry at a perilous time. Sales have plunged around the world. In Europe, for example, they were down 25% in 2020.

All of this is happening as automakers attempt to navigate a change in core technology from internal combustion engines to batteries, which has subjected them to new competition from Tesla, the California-based company that has become from far the most valuable automaker in the world, and emerging. Chinese manufacturers like Nio.

The exact duration of the shortage is unclear. It can take 20 to 25 weeks from the time new orders are placed for the chips to be produced and move through the supply chain to reach the cars, said Michael Hogan, senior vice president of GlobalFoundries, a large chip maker serving the automotive industry and other markets.

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“We are doing everything humanly possible to prioritize our automotive production,” said Hogan.

German automotive electronics supplier Bosch said the shortage was particularly acute for integrated circuits used to control engines, transmissions and other key functions. “Despite the difficult market situation, Bosch is doing everything in its power to ensure supply to its customers and minimize any further impact,” the company said in a statement.

Automakers and suppliers are responding as best they can. Honda said it didn’t have to shut down production lines, but gave priority to its most popular models. BMW, based in Munich, said it had been able to maintain production but was “watching the situation intensively” and in constant contact with suppliers.

German supplier Continental, which is best known for its tires but also produces electronic components, called on semiconductor producers to boost the capacity of foundries that produce chips.

“Future investments in these foundries will therefore be essential for the auto industry to avoid such supply chain disruptions in the future,” Continental said in a statement.

Munich-based Infineon said it was increasing its investment in new production capacity in 2021 to € 1.5 billion, or $ 1.8 billion, from € 1.1 billion in 2020. The company is also ramping up production at a new chip factory in Villach, Austria, which will produce 12-inch wafers.

But it will take time for semiconductor manufacturers to catch up. In the meantime, the PlayStations have priority.

“The automobile is back and they are no longer at the forefront of chips,” said Gary Silberg, global head of automotive practice at KPMG.

Neal E. Boudette and Hisako Ueno contributed reporting.

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