Automakers have fallen victim to the business logic that prevails in capitalist economies: give priority to those products, segments and markets that generate the highest profitability. And for semiconductor makers, automotive chips aren’t the most profitable product right now.
An average vehicle has about 1,600 semiconductors, according to calculations by the consulting firm IHS Markit, but they are larger and a little less sophisticated than those that go into smartphones or supercomputers. So when demand for these latest devices exploded amid the lockdown, the world’s largest semiconductor maker, Taiwan Semiconductor Manufacturing Company (TSMC), was quick to focus its production capabilities on the tiniest, most cost-effective chips.
“Most of the investment that has been made in the last decade has been in small semiconductors… In 2021, TSMC decided to focus on the semiconductors that generated the most sales, which are the small ones. And this had severe consequences for the automotive sector: 11 million units were discontinued worldwide”, explains Guido Vildozo, sector analyst at IHS Markit.
Before the pandemic, TSMC supplied 80% of the semiconductors that other companies used to make the chips that go into motors, infotainment screens, doors and even some tires. So when the Taiwanese manufacturer decided to put automotive chips on the backburner, it triggered a supply crisis that dragged on throughout 2021.
During the fourth quarter of last year, TSMC’s revenue increased 5.7% quarter over quarter, “supported by strong demand for our industry-leading 5nm (nanomillimeter) technologies,” the company detailed in its latest quarterly report. . “By platform, smartphone and HPC (high-performance computing) accounted for 44% and 37% of net revenue respectively, while IoT (internet of things), automotive, DCE (consumer electronics) and others each accounted for 9%, 4%, 3% and 3%,” the report says.
Analysts expect chip supplies to start to stabilize as TSMC ramps up production of larger chips and new North American semiconductor plants start production.
Intel broke ground on two factories in Arizona on September 24, 2021, as part of its plan to regain its lead in chip manufacturing by 2025, after falling behind rival TSMC. The new plants will also be the first that Intel builds from scratch with space reserved for outside customers.
The company has long made its own chips, but its turnaround plan calls for taking on jobs for outside clients, from cellphone makers and companies that offer cloud storage services to car builders.
Hyundai announced at the end of last year its intention to reduce its dependence on external suppliers.
But getting these new plants up and running will take at least two years, so analysts expect the shortage to last several more months. “We believe that this semiconductor problem will be with us for another 18 months… It will be until mid-2023 when the flow of chips reaches the vehicle plants normally,” says Vildozo.
Meanwhile, inventory of new models on sales floors will continue to be limited, high prices and waiting lists of two or three months will be the common denominator in practically all brands. Perhaps only the Chinese, which have managed to get hold of chips, have a higher inventory flow during the first half of the year.
“There will not be much difference in production volumes this year compared to what we saw in 2021,” explains Vildozo. “This cycle of contraction that we saw in the second half of the year, due to the lack of chips, will extend into the first half of the year,” he added.
IHS Markit’s projection for the Mexican market is a monthly sales volume of between 75,000 and 80,000 during the first semester, while the annual one is 1,050,000 units.
“Demand does exist, what there isn’t right now is product,” adds the analyst.
