Carmakers rethink strategies to deal with chip crunch

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Carmakers rethink strategies to deal with chip crunch

Automakers are having to come up with creative solutions to deal with the global shortage of semiconductors, whether buying computer chips directly from manufacturers, reconfiguring cars or producing them with missing parts.

The auto industry is hit hard because millions of vehicles are not being produced because of the shortage due to supply problems and a surge in demand for consumer electricals during the epidemic.

With the problem lasting longer than anticipated, manufacturers like Daimler and Volkswagen have had to rethink production strategies.

Car manufacturers usually buy parts from major suppliers, such as Bosch and Continental, which in turn buy from suppliers further down the chain.

That has led to a lack of transparency, said Ondrej Burkacky, senior partner at McKinsey.

He said there was the fallacy of thinking that you had a choice between two suppliers, but the truth is that they both had the chips made in the same foundry.

According to Markus Sch fer, Daimler Purchasing Manager said that is now changing.

He said at the IAA auto show in September that the German manufacturer of Mercedes-Benz cars has set up a direct line of communication with all chip suppliers, including wafer producers in Taiwan.

Herbert Diess, Volkswagen boss, speaks about strategic partnerships that his company has entered into with manufacturers in Asia.

Stefan Bratzel, a Chip supplier at the Center for Automotive Management said chip suppliers need to be treated differently because of their strategic importance to the industry.

He said that they have seen the problems that arise when they treat chip companies like other suppliers and stop the calls.

Burkacky said that carmakers should consider direct investments in production or longer contracts with terms of more than 18 months.

He said that not much of it has been implemented yet.

In the meantime, vehicle developers are doing their part to help manufacturers manage the supply crunch.

Annette Danielski, chief financial officer of Volkswagen's Traton trucking unit, said the company was trying to clear some space on the motherboards of control systems.

She said that if we change the software, we can use fewer semiconductors and achieve the same functionality. It takes a long time to get a handle on something because the regulatory authorities intervene, but there are areas where you can change things quickly. Daimler relies on new designs for control units. The head of purchasing Sch fer said that these are designed to work with an alternative that can be used in the event of delivery problems rather than using one specific chip.

Tesla is considered a model for this.

The software program was reprogrammed within three months so that other less scarce chips could be used, enabling the U.S. electric carmaker to weather the crisis better than many others.

General Motors is working with chip manufacturers like Qualcomm, STM and Infineon to develop microcontrollers that combine several functions previously controlled by individual chips.

A company spokeswoman said that they wanted to create an ecosystem that is more resilient, more expandable and always available.

Some carmakers are stockpiling, or what BMW calls hole shoring. The whole car is built, except for a missing part, and can be completed relatively easily when it shows up.

Other automakers are using this strategy. Sometimes, vehicles are delivered without certain functions controlled by chips.

Semiconductors are also conserved for high-quality vehicles, like electric cars, while customers face longer wait times for low-priced combustion engines.

The strategy is slowly reaching its limits. Volkswagen had to stop production of electric cars in its Zwickau plant in Germany.

How well these coping strategies work is not yet clear.

The bill will be presented in mid or late 2022 when you can see who came out of the crisis well and who did not make it so well, said Burkacky, McKinsey's Burkacky.