Automakers Battle Chip Crisis As Smartphone Makers Lure High-End Chipmakers: Reuters

  • The chip crisis fueled by the trade war has wreaked havoc on the auto sector. Automakers are stuck with tough choices - to pay more, pile up stock or face bottlenecks as chipmakers concentrate on other tempting opportunities, Reuters reports.
  • Leading automakers, including Volkswagen AG (OTC: VLKAF) (OTC: VLKPF), Ford Motor Co (NYSE: F), and General Motors Co (NYSE: GM), are forced to opt for production holidays as consumer electronics, including smartphones, continue to sway the chipmakers with the purchase of progressive and higher-margin chips. On the other hand, automakers mostly require basic products like microcontrollers manufactured under contract at older foundries and do not attract chipmaker investment.
  • Apple Inc (NASDAQ: AAPL) spends way more on iPhone chips alone compared to the auto industry.
  • The chip crisis has exposed the auto sector’s vulnerabilities that were rendered complacent by just-in-time deliveries and a robust supply chain.
  • Automakers are lobbying governments for subsidizing the construction of higher chip-making capacity. Volkswagen urged Germany’s Economy Minister Peter Altmaier to request his Taiwan counterpart for a higher chip supply.
  • Volkswagen reportedly warned the semiconductor manufacturer regarding idle capacity amidst the pandemic, followed by a strong recovery in the second half of the year. The semiconductor manufacturers blamed the carmaker for incremental costs for idle capacity.
  • The crisis will loom despite the commissioning of new chip plants by leading auto chip suppliers Infineon and Robert Bosch. Infineon outsources auto chips from Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM), which remains keen on high-end electronics makers.
  • Going forward, a resolution lies in the form of electric vehicles, which require sophisticated chips.
  • This year, the shortage could lead to reduced car production between 5% to 10% for Europe and North America. Capacity constraints are expected to last till the mid of the year, with lean inventory level till the second quarter.
  • However, the demand-supply mismatch crisis is not expected before the later part of the year.

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