13-02-2021 | | By Robin Mitchell
Recently, TSMC answered the Taiwanese government's call for silicon manufacturers to help out the automotive industry. What challenges has the automotive industry faced, what will TSMC be doing, and how will the automotive industry recover?
Recently, reports have been coming out of automotive companies to either reduce production outputs of new vehicles, or stop production lines entirely with some of these companies, including Honda, Ford, Toyota, BWM, and GM. The cause of the halt in production comes from a shortage of automotive-grade semiconductor, and it is expected that it will take as long as 6 months to get levels back to normal.
Before we learn why it takes so long to respond to a semiconductor shortage we first need to understand what caused it in the first place. When global lockdowns were announced, there was widespread job losses and wage reductions which saw people spending less money. As such, vehicles were one of the many luxuries of life that stopped being sold, and as such, the demand for automotive parts shrank.
This shrinkage in demand for automotive parts also occurred when the demand for electronics such as laptops and phones increased (remote working). This led many semiconductor manufacturers to switch to producing parts that were in high demand and reduce production rates on automotive parts.
As lockdowns were lifted globally, car manufacturers started to notice an increase in demand for vehicles. However, it turns out that semiconductors can take up to 6 months to produce (due to the many numbers of processing and testing steps), meaning that the increase in demand for automotive parts cannot be met by foundries immediately. As such, the automotive industry is now grinding to a halt until these parts become available again.
Recently, the Ministry of Economic Affairs in Taiwan approached the semiconductor industry in Taiwan to ask for help with automotive semiconductors' production. The automotive industry is a key industry for many countries, and its inability to restart hurts global economies and could push some automotive companies into financial trouble.
According to the Ministry of Economic Affairs, four major semiconductor foundries have agreed to try and help out with the situation, with TSMC being one of the more notable foundries. TSMC has announced that it will prioritise the manufacture of automotive parts despite the supply chain being long and complex.
Before the automotive crises, automotive devices only accounted for 3% of TSMC total sales with laptops and SoCs being the biggest at around 50%. However, the reallocation of resources to produce automotive parts has now seen this percentage rise to 27% of sales.
To start, even with the temporary help of TSMC, it will still take a long time for automotive component stocks to increase due to the time take to manufacture ICs. Furthermore, the increasing spread of variants of COVID introduces an element of future lockdown risk, with some governments mentioning COVID restrictions until 2022.
Even with lockdowns coming to an end, economic recovery from COVID will take a while, and the many businesses which have shutdown have left many unemployed. Such a weakened economy will see less spending on vehicles and other luxury items, and therefore automotive companies will struggle to increase car sales.
Understanding markets and supply chains is no easy feat. Many would have not been able to predict the automotive sector's impact when it decided to stop manufacturing cars at the beginning of the pandemic. Furthermore, car manufacturers may have taken semiconductor production for granted without considering how their buying power affects the future supply chain. Automotive companies can learn from the pandemic, and in the future make arrangements with semiconductor foundries to keep on with production during pandemics and market downturn.