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Managing the 2021 automotive chip famine

[This is an excerpt taken from the whitepaper]

The crisis has highlighted the need for adjustments in capacity and sourcing patterns between automakers, tier-1 suppliers, semiconductor suppliers, and their foundries. In the short term, only industry-wide collaboration can helpreduce the effect.

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The semiconductor shortage crisis has hit the automotive industry at a time when the sector started to experience a moderate recovery in production levels following a pandemic-inflicted slowdown. The ramp-up in demand of chips from the automotive industry started when the supply lines were already stretched by significant demand for chips from the consumer electronics sector, for 5G phones and infrastructure, new gaming platforms, and IT equipment. There are no easy fixes to the capacity constraints owing to the long and complex manufacturing processes of semiconductors, which make new capacity building a capital-intensive and time-consuming affair. The shortage is expected to last until the third quarter of 2021, when re-allocation of capacity from semiconductor foundries and possibly some cooling-off of consumer electronics demand should provide greater supply security.

Although major semiconductor suppliers, such as Taiwan-based Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC), have announced investment plans to increase production capacities, these efforts will not bear fruit over the short term and will force automotive OEMs and their tier-1 chip suppliers to reformulate their conventional semiconductor sourcing strategies. The crisis has highlighted that the traditional short-term sourcing cycle that automotive companies have pursued may not bode well with production and scale cycles that the consumer electronics sector commands to semiconductor manufacturers. IHS Markit expects supply chains to introduce some changes in their approaches to inventory management to be better prepared in future.

IHS Markit's Supply Chain and Technology team has been tracking the chip situation since April 2020. "Because the cause of these constraints is the result of increasing demand from OEMs and limited supply of semiconductors, it will not be resolved until both forces are aligned. If the cause was a natural disaster, then the supply chain would respond with the appropriate recovery plans and while that would still take months or quarters to implement, plans already exist. This is a case of balancing supply and demand and with microcontroller unit (MCU) lead times being 26 weeks or longer, the supply chain constraints will likely persist until at least the third quarter of this year," said Phil Amsrud, senior principal analyst-ADAS, Semiconductors and Components, IHS Markit.

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Posted 02 February 2021 by Jeremie Bouchaud, Director, Autonomy, E/E & Semiconductor, IHS Markit and

Phil Amsrud, Senior Principal Analyst - Automotive, IHS Markit and

Richard Dixon, Ph.D., Senior Principal Analyst, Automotive Sensors

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