Understanding Global semiconductor shortage, How does it impact Automotive Industry - bauaelectric

Global Shortage of Semiconductor Chips

Consumers are facing global semiconductor shortages, result of the shortages is a sudden hike in the semiconductor components. 

due to the lockdown during the corona virus pandemic factories got shutdown and there is was a delay in the supplies, however now the production has came back to normal butdue to the change in the habit of production driven by this the supplies demand has occured and reached the crisis point.

 

due to this shortage the $2tn company Apple Inc. the biggest buyer of semiconductor coponents has delayed its production of the much hyped iphone12 by 2 months last year.

 

Ford recently cancelled shifts at two car plants and said profits could be hit by up to $2.5bn this year due to chip shortages, while Nissan is idling output at plants in Mexico and the US. General Motors said it could face a $2bn profit hit. (source - the gaurdian.com)

 

the most telling example of the semiconductor crisis has come from Samsung, the world’s second-largest buyer of chips for its products after Apple. Earlier this week, the company said it might have to postpone the launch of its high-end smartphone due to the shortage, despite also being the world’s second-largest producer of chips.

“It is incredible that Samsung sells $56bn of semiconductors to others, and consumes $36bn of them itself, finds it may have to delay the launch of one of its own products,” says Campling (source - the gaurdian.com).

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Crisis impact could peak in April

According to Jeremie Bouchaud, Director -- Autonomy, E/E & Semiconductor, IHS Markit, “Because of the lag from the chip production to assembling chips into Electronics Control Units (ECUs) and building these ECUs in a car (couple of weeks) the peak of the crisis in term of impact on the car production volumes will likely be in April.”

He also predicts that the IC shortage will gradually become less critical during the April – June quarter, and by the third quarter chip should be able to meet the running demand of OEMs.

It is anticipated that it will be only by the October – December quarter that chip makers will be able to produce the additional volume to make up for the missed vehicles during the first half of calendar year 2021.

According to LMC Automotive, the impact of global semiconductor shortages is expected to undermine European light vehicle production by almost 150,000 units in the opening quarter of 2021. Moving into Q2, further semiconductor supply shortages could see another 60,000 units output cut from European automakers’ plans.

Over the second half of the year, LMC says it expects the supply of semiconductors to normalise and for OEMs to recoup most of the lost volume by keeping plants operational through traditional summer shutdowns, if necessary. Even so, any major delays to the chip supply recovery beyond Q3 could result in a further 200,000 fewer vehicles being produced this year. (Source - autocarpro.in)

 

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Was this Precedented ?

Yes. In 2011, we had the famous earthquake in Japan, Fukushima, and the consequence of that was that there was a company called Renasas that produces chips, primarily for the auto industry but for others as well. It turned out that this one factory, not far from Fukushima, was a major supplier of chips that go into automobiles around the world. 

And because of the tsunami and the earthquake, the factory was shut down. And as a result, worldwide capacity was reduced significantly, by about 25%—very noticeably. And factories all over the world had to curtail production and shut down—Japanese manufacturers, German, Chinese—you name it. And it turned out that all these manufacturers were installing modules required for assembly, called ‘subassemblies’, i.e., the entertainment system, the fuel monitoring system, or the climate control system. 

All of these modules, produced by various vendors, are then assembled into the automobile. These days, many components and subassemblies use a lot of chips. It turns out that for a lot of manufacturers around the world, this one plant was a major source of supply. So, when it went down, everybody was disrupted. What was interesting was that most companies didn’t even know this factory was a supplier to their suppliers. That’s the nature of supply chains. 

They do not just include first-tier suppliers but require that all the levels—tiers—below the first satisfy demands as well. And this led to what we call a ‘diamond shape’ supply chain, i.e., one with a perfect choke point. All material flow has to go through this one point and when it is disrupted, the whole system brakes down.

This happened in 2011, and it took many months for the major manufacturers to recover production levels. Four months, six months—it depended on the manufacturer. Everybody said, ‘We learned our lesson and know where we are vulnerable. Surely it won’t happen again.’ (Source - penntoday.upenn.edu) 

 

How the automotive sector can beat supply bottlenecks with risk management from Roland Berger

Near term: Avoid line stoppages 

Medium term: Establish advanced sourcing and supplier management

Risk transparency and categorization

Strategic sourcing

Real-time monitoring 

Sourcing team with a focus on relevant components

SKU reduction and standardization

Software-based function definition

 
Safety stock of critical components

Long term: Improve supply structures