Auto semiconductor shortages eased, shortages to persist until at least 2023

There are some signs that the shortage of automotive semiconductors has eased. However, production of light-duty vehicles is likely to remain below its production capacity until at least 2023. LMC Automotive’s July light vehicle production forecast shows light vehicle production will reach 81.7 million units in 2022, up 2 percent from 2021. LMC’s January forecast showed a 13% increase in light vehicle production in 2021, more than 4 million more than the current forecast. The July forecast calls for a 5% increase in production in 2023 and a 7% increase in 2024. The LMC forecast for April 2023 and 2024 is 4 million units per year higher than the July forecast. In 2024, production of 91.7 million units should still be lower than the pre-pandemic level of 94 million units (five years ago).

Auto semiconductor shortages eased, shortages to persist until at least 2023

The main reasons for the shortage of automotive semiconductors are:

In early 2020, at the start of the COVID-19 outbreak, automakers severely cut semiconductor orders. Auto companies are worried they will be stuck with a glut of vehicles if demand falls sharply due to the pandemic. As automakers try to boost orders, they have lost their place on the production line, falling behind other industries such as personal computers and smartphones.

Many automakers use just-in-time ordering systems to avoid excess inventory. This leaves them with almost no buffer stock. Additionally, most of the semiconductors used in cars are purchased by the companies that supply the systems (engine controls, dashboard electronics, etc.) rather than by the automaker, resulting in a more complex supply chain.

Semiconductors used in automobiles have long design cycles and must meet qualification criteria. Therefore, it is difficult for automakers to switch suppliers in the short term.

Semiconductors used in automotive applications are older than the process nodes used in most other applications due to long design cycles and long product lifetimes. As shown in the table below, McKinsey estimates that in 2021, 72% of automotive semiconductor wafers will use a 90nm or larger process node, compared to 52% of all applications. Only 6% of automotive demand is at 14nm and less process nodes, compared to 21% for all applications. Semiconductor manufacturers have concentrated their capital expenditures on more advanced process nodes while scaling capacity only modestly on older nodes. Dominant foundry TSMC generates 65% of its revenue from advanced process nodes and only 12% of its revenue from 90nm or larger nodes. Only 5% of TSMC’s revenue comes from automobiles, while smartphones account for 38%. So, for foundries, automakers usually have a lower priority.

Given all the factors above, it will take time to resolve all supply issues. Recent comments from major automakers suggest a mixed trend toward addressing semiconductor shortages.

• Toyota – shortage until at least the third quarter of 2022;

• Volkswagen – shortage relief;

• Modern – Shortage mitigation;

• General Motors – still affected by shortages in 2023;

• Stellantis – Shortage in the second half of 2022;

• Honda – uncertain outlook due to shortages;

• Nissan – recovery in coming months;

• Ford – shortages remain an issue;

• Mercedes-Benz – no major supply issues;

• BMW – no production delays due to shortages;

• Volvo – to restore full supply;

• Bosch (parts supplier) – Shortage until 2023.

The following table lists the major semiconductor suppliers for the automotive market. In 2021, the top 10 suppliers account for 46% of the total automotive semiconductor market with a combined value of $69 billion (according to WSTS). The automotive industry accounts for a sizable portion of these companies’ total semiconductor revenue, ranging from 17% to 50%.

The top five automotive semiconductor suppliers also took a different view of the shortage in their most recent Q2 2022 financial reports:

• Infineon Technologies – gradual easing of shortages in 2022;

• NXP Semiconductors – demand will still outpace supply in Q3 2022;

• Renesas Electronics – inventory returns to planned levels at the end of Q2 2022;

• Texas Instruments – Inventories remain below expectations;

• STMicroelectronics – capacity sold out in 2023.

The shortage of automotive semiconductors is likely to continue until at least 2023. While some automakers say they have resumed full production, most report that there will still be a shortage of automotive semiconductors. Shortages will keep automakers from producing enough cars to meet demand in 2022 and 2023, resulting in persistently high prices for most vehicles.

Automakers and semiconductor suppliers are working to prevent such severe shortages in the future. Automakers are adjusting their just-in-time inventory models. Automakers are also working more closely with semiconductor suppliers to communicate their short- and long-term needs. Semiconductors will become even more important to automakers as trends in electric vehicles and driver assistance technologies continue.

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