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"At this stage, while we anticipate a million vehicles will
be delayed from production in the first quarter, we expect the
industry to recover later in the year, with little expected risk to
the full year forecast of 84.6 million units at this time. We are
continuing to monitor, however, and the situation remains fluid." -
Mark Fulthorpe, Executive Director, Global Light Vehicle
Production, IHS Markit
Since late 2020 there has been disruption within the supply
chain of semiconductors to the automotive sector. Pressure built as
the industry recovered from the widespread lockdowns implemented in
the first half of 2020 and that recovery cycle clashed with
increasing demand from the wider consumer electronics sector, which
was itself recovering strongly late in the year, building stocks
for the holiday season.
As a result, vehicle manufacturers are finding increased
disruption to the supply of systems using semiconductors in the
first quarter. We do not have every major OEM identified so
additional risk would sit there, and that can be applied to almost
all regions, although the visibility in Japan is close to
comprehensive.
The semiconductor supply chain for microcontroller unit (MCUs)
normally has 12 to 16 weeks lead time from order to delivery to
OEM/Tier 1. So, today's issues in the semiconductor production have
approximately doubled the normal lead time to at least 26 weeks. We
expect the situation to hit bottom around the end of March,
although the supply chain will still be constrained into Q3. In our
volume assessment, we have only considered the impact in Q1.
Relative to chip supply, however, based on known factors today,
IHS Markit analysts anticipate the bottom of the chip shortage
crisis likely towards the end of March for MCUs. Beginning in
April, we anticipate MCU supply will improve but still not meet OEM
demand. In the third quarter, it appears MCU supply could meet the
OEMs' ongoing demand at that time, but perhaps not make up the
missed demand from the first half of 2021. It is anticipated that
MCU supply in the fourth quarter could be able to meet OEMs'
ongoing demand and start making up the missed demand from the first
half of 2021.
Eventually all OEMs will be impacted by the MCU supply
constraints, those with more inventory in their supply channel --
for examples smaller OEMs or some Japanese OEMs because of their
use of distributors to hold inventory -- may be less impacted until
their inventory is consumed.
As a result of this situation, integrated circuit (IC) vendors
will need to revisit working with foundries, either by diversifying
relationships to use more foundry suppliers or to use the same
suppliers but diversify the number of regions the ICs are produced
in.
In addition, there may be some slight steps for chip
manufacturers to bring back more in-house wafer processing, but IHS
Markit does not expect a total reversing of the "fab-light"
strategy which prevails in the industry to save on CAPEX.
Especially for advanced nodes, the dependance on Taiwan
Semiconductor Manufacturing Company (TSMC) and United
Microelectronics Corporation (UMC) will remain.
The situation remains highly fluid and we continue to track the
impact of these developments alongside our assessment of the
recovery in production since the outbreak of the COVID-19 pandemic.
Currently there are varying estimates as to the length of the
semiconductor shortage, with some suggestions that the situation
will improve from the second quarter onwards, while some of the
lower level disruption could even be recovered within the current
quarter.
Overall, the global light vehicle production volume at risk has
risen to nearly a million units for the first quarter. At this
level, we still expect the majority of volume can be recovered
across the balance of the year, so we expect of the current
shortages to be more of a seasonal impact, with volume lost in the
first quarter, displaced to later in the year, rather than an
absolute reduction to the 2021 calendar year forecast. However, as
we move closer to the million-unit mark and as plants building
high-demand programs are brought into the mix, it could become more
challenging to entirely offset production losses within the
calendar year.
Although the current situation is expected to be limited mostly
to 2021, it has brought concerns over the supply chain in certain
areas to the forefront. Both European Union and the Biden
Administration in the US are considering ways to address the
shortage and reduce the dependence on the supply chain from Asia
with more localized production.
"It will get worse before it gets better. Short term all
that can be done is juggling priorities in the foundries to make
more automotive MCUs instead of products for other markets. Longer
term, the automotive industry needs to make supply assurance as
high a priority as cost savings to incentivize the supply chain to
be more diverse. Moving to more advanced process nodes makes the
industry even more susceptible to a limited number of foundry
options." - Phil Amsrud, Principal Senior Analyst, Automotive
Supply Chain & Technology, IHS Markit
Posted 16 February 2021 by Mark Fulthorpe, Executive Director, Global Light Vehicle Production Forecast, S&P Global Mobility and
Phil Amsrud, Senior Principal Analyst - Automotive, S&P Global Mobility
