In late July, U.S. Commerce Secretary Gina Raimondo said things were getting better for automakers suffering chip shortages that have crippled plants and shuttered production.
Not that much better turned out, as it turns out. This week, suppliers of those vital electronics - components warned the problem was not over and said the vehicle industry's rapid pivot to electric vehicles could further stretch their capacity to catch up. Several clients share the cautious view.
According to the two biggest players of chips used by automakers, Infineon Technologies AG and NXP Semiconductors NV, demand and supply will not come into balance until the middle of next year. That would mean long pain for carmakers who have been grappling with the issue since late 2020.
'It's really important to emphasize how much we are increasing supply, NXP Chief Executive Officer Kurt Sievers said in an interview. 'Demand is still outstripping supply and tightness will last into 2022, he said.
Chipmakers have little to complain about - surging revenue has pushed their profits to record levels. Automobile companies have been left with empty lots, preventing car manufacturers from fully capitalizing on a post-Covid increase in demand. The protracted uncertainties are on track to cost carmakers at least $110 billion in losses in sales this year.
On Thursday, the U.K. car industry's trade group cut its annual sales forecast for the third time this year citing ongoing supply chain issues and staff shortages caused by quarantines. Just 123,296 new cars were purchased in July with 29% registration drop from a year ago, said the Society of Motor Manufacturers and Traders.
The shortage also threatens to slow the transition of electric vehicles. Auto brands have announced a flood of electric EVs this year, with even gas-engine icons such as Ford Motor Co. s F - 150 pickup truck getting new versions. The batteries, motors and modules which control and monitor electric v's are based on semiconductors. Is entertainment, safety, and driver-assistance more sophisticated than other features in iPhone?
The net effect is that there are a lot more semiconductors in cars than ever before.
Illustrating that, in the first half of the NXP autochip sales jumped 21% compared with the same period in 2019 before the pandemic. That occurred, even as global car production plunged 13%, according to Sievers. Semiconductor content in EVs, including hybrids, is double that of a gas-powered car, he said. In 2022, EVs will equal the volume of car production used in 2020, and double the 12% share she had in 2020.
In one sign of how promising the auto market has been for chipmakers, Magna International Inc. offered to buy the automotive technology company Veoneer Inc. for $4.6 billion, a bid that would rival Qualcomm Inc.'s offer for the supplier last month.
It takes months for chipmakers to boost output, or two years if they build a new plant which costs billions of dollars. Meanwhile, the coronavirus pandemic is still causing production disruptions.
The vast majority of the chips used in vehicles are made using older technology. The industry hasn't invested in such production because it's closer to obsolescence and less lucrative than chips that go into the latest smartphones and computers. Still, a number of factories currently thought or planned are set to bring relief, albeit not anytime soon.
'It will take 12 to 18 months for those machines to come on line, said Syed Alam, the head of Accenture Plc's semiconductor practice. 'Cars that are manufactured with silica has become more advanced than all other vehicles; they do not provide any real advantages from electric or the analog technology, in spite of their changes. Electric vehicles take it to a different level.
On Wednesday, General Motors Co. CEO Mary Barra declared the component supply situation 'fluid'. Constraints may continue to weigh on profitability, the company cautioned. Barra said GM has just 25 days of stock in the U.S. about one-third of its normal stock of cars and trucks in the U.S. It has prioritized its highest-margin vehicle, but hasn't been able to shield them completely from the shortages.
Volkswagen AG will cut its full-year procurement forecast on chips supply problems last week, declaring disruptions and bottlenecks had intesified throughout the industry. BMW AG described semiconductors as clouds on the horizon and said it expects to have to lose sales of about 90,000 cars in 2021, equivalent to less than 10% of first-half shipments.
The longer the supply bottlenecks last, the more tense the situation is likely to become, said Nicolas Peter, BMW finance chief, in a statement this week. 'We expect production restrictions to continue in the second half of the year and hence a corresponding impact on sales volumes.
Ford is currently reducing production to eight factories, including the factory manufacturing its new version of the iconic Bronco sport utility vehicle. Five of GM's North American plants will experience 'downtime' due to'semiconductor production adjustments' in August, according to spokesman David Barnas.
Ford and Stellantis NV raised their profitability outlook for the full year, but that's because they are saving scarce chips for higher-end vehicles rather than mass market models. That helps to boost total sales volumes while average prices are getting hit.
The biggest automaker SAIC Motor Corp. cut its production by 500,000 cars in the first half because of the shortage, while the country's government launched a probe into possible price manipulation of mobile chips this week.
Honda Motor Co. cut its full-year unit sales target on tight semiconductor supplies.
The Korea's Hyundai Motor Co. warned in late July that the chip crunch could reduce its third-quarter deliveries after posting its biggest profit in seven years, bolstered by sales of luxury Genesis cars and Ioniq 5 electric vehicles.
Chipmakers say that supply constraints persist at foundries, the manufacturers they rely on for some of their production. Taiwan Semiconductor Manufacturing Co., the go-to foundry for major auto-chip makers, plans to boost output of automotive microcontrollers by 20% from 2020 levels, which NXP analyst sievers told analysts this week 'isn't that much : In total, TSMC is investing $100 billion to expand manufacturing over three years.
'Inventories are extremely tight and end demand is being postponed, Reinhard Ploss announced on a conference call this week. 'All in all, it takes time to get back to a supply demand equilibrium.