When Facing a Severe Shortage of Automotive-grade ICs… Leave a comment

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According to the statistics of AutoForecast Solutions, in 2022, the global automobile industry reduced production by 4.5 million new cars due to the shortage of chips. In 2023, the shortage of chips will still affect the production of automobiles, and it is estimated that 3 million cars will be reduced. What are the reasons for such a shortage and how can we deal with the shortage more efficiently? 

What are automotive-grade ICs (integrated circuits)?

Automotive-grade chips are kinds of semiconductors used in vehicle control devices, vehicle-mounted monitoring devices and vehicle-mounted electronic control devices, which are mainly applied in vehicle control modules, in-vehicle infotainment, power transmission integrated control system, active-safety system and so on. 

According to functional categories, automotive-grade ICs can be divided into main control/calculation chips (MCU, CPU, FPGA, ASIC, AI chips, etc.), power semiconductors (IGBT and MOSFET), sensors (CIS, acceleration sensors, etc.), wireless communication and automotive interface chips, automotive memory, etc.

Differences between automotive grade with other grades

Being different from commercial-grade chips and industrial-grade chips, automotive-grade chips require higher reliability, such as wider working temperature range and better working stability and so on. The differences among chip grades are mainly determined by complex chip design processes and control of production processes, resulting in differentiation in working temperature ranges, stability, and other aspects. Besides, automotive-grade chips need to pass ISO/TS16949, AEC-Q100, ISO 26262 certifications.  It usually takes 2-3 years to finish all the above tests. 

The review of the semiconductor market in 2022

Huge volatility in the chip industry happened in 2020. Despite the downturn in the second half of 2022, sales of semiconductors reached a record high of US$574.1 billion in 2022, which increased 3.3% over 2021 sales (US$555.9 billion).

From a global perspective, total revenue of the US market increased the most (16.2%) in 2022. The annual sales of Europe and Japan market followed US market closely with the growth rate of 12.8% and 10.2% respectively. China contributed the largest share of the consumer semiconductor market globally in 2022, with total sales of $180.4 billion, a decrease of 6.2% compared to 2021.¹

According to statistics of year 2022, the decline of chip market began in July, a decrease of 2.3% compared with 50.2 billion US dollars in June 2022. However, the sales of global semiconductor industry in July 2022 were 49 billion US dollars, compared with the sales of 45.7 billion US dollars in July 2021 which increased 7.3% year-to-year.²

The global semiconductor market has shrunk month by month from July 2022 to March 2023.

Reasons for the severe shortage of automotive-grade ICs:

At present, the shortage of automotive chips includes power management chips, displays, substrates, etc., and MCUs are facing serious supply problem. There are mainly 3 factors caused the severe shortage of automotive-grade ICs.

• Unexpected strong growth in demand for automobiles. Given the outbreak and the lasting influence of global COVID-19 epidemic, the automakers cut production requirements and put forward the reduction of production requirements to IC manufacturers. To the surprise of the automakers, the demand for automobiles rapidly rebounded within a year. Therefore, automakers needed to re-place orders with IC manufacturers who were supposed to restore the supply of electronic components correspondingly. The manufacturing process of automotive-grade chips is difficult and requires a long lead-time, which takes at least 3-6 months. As a result, automakers proposed to restore chip supply, while the insufficient production capacity of automotive-grade IC cannot meet the sudden increasing needs.

1. Consumers’ higher pursuit of automobile performance and the replacement of automobile types. With the upmarket demand of high-performance type, the number of high-level chips required for each automobile has increased, resulting in an increase in the overall demand for chips. The number of chips needed by a conventional car is 500-600 pieces on average that applied in various systems of the car such as logic computing chips, micro-controllers, memory chips and others. In recent years, the required chips of one new energy vehicle can reach 1200-1300 pieces or even more. It can be predicted that as the intelligence level of cars continues to improve, the demand for chips will increase. According to the following table, although the PC/Computer and communication terminal market still accounts for the largest share of semiconductor sales in 2022, its leading edge has narrowed. Meanwhile, the end market revenue of automotive and industrial were growing dramatically.

• The production capacity of automotive-grade chips has declined.

Apart from the outbreak of the COVID-19 epidemic, the natural disasters also caused the failure of normal operation of foundries and other factories of semiconductor industries. In December 2020, a 6.7-magnitude earthquake struck some areas of Taiwan Province, China. It affected the operation of some equipment in the packaging and testing facility. In February 2021, a 7.4-magnitude earthquake occurred in the eastern waters of Japan. Within the same month, Texas suffered a rare cold wave and brought large amount of snow and ice, which led to a large-scale power outage in the whole state and seriously affected the normal production activities of the foundries. On March 19th, a serious fire broke out in the factory of Renesas, Japan, and the wafer production lines were seriously damaged. All natural disasters made it impossible to return to normal working status in a short time that given rise to the insufficient capacity and delayed supply. 

An additional reason for declining production of automotive-grade IC is the popularization of home office and online education, demands for consumer electronics increased correspondingly. PCs, mobile phones, home smart devices, and homogenous products have relatively low requirements for chips, that generally use commercial-grade chips. Based on the shorter production cycle and larger profitable space of commercial-grade chips, IC manufacturers are more preferred to transfer their production capacity to commercial-grade chip manufacturing, and the production capacity of automotive-grade chips is squeezed. 

With the increasing cost of wafer, packaging and masking, the hardware cost of one chip is rising overall. Moreover, the increasing disturbance factors in the supply chain caused the continuous extension of supply time. Logistics have been stagnant and product delivery times have been prolonged because of various uncertain situations of today’s society, which leads to a shortage of chip supply in a short period of time.

Flexible strategies for dealing with the shortage of automotive-grade ICs

The imbalance between supply and demand of automotive-grade chips will hardly recover in a short time. Improving supply chain management will help lower the invisible and sunk costs and strengthen the ability to respond to the sudden situations.

1. Being active and keeping the sufficient buffer of production and delivery. Placing orders to manufacturers and franchised distributors does not mean 100% on-time delivery of parts. For alleviating the risk of delayed delivery, following up the production schedule of IC manufacturers tightly. For example, checking the manufacturing status monthly or quarterly for evaluating the potential risk of delay. If there is a possibility for delayed delivery, the re-arrangement of production plan and procurement lead time buffer is recommended.
2. Diversifying the procurement channels, expanding the list of suppliers. Try to avoid being limited by existing purchasing channels and take more alternative suppliers into consideration. There are some ways to expand supply sources: finding new suppliers on reliable platforms for electronic components like Findchips, subscribing relative reports and newsletter of industry publishers that have strong database of diversified participants of ICs.

Asian Tera Part Limited has been specialized in the electronics industry for 13 years. We have accumulated rich industry experience and formed a complete supplier system. Our suppliers are all over the world and we will spare no effort to provide you the products in demand with competitive prices. If you are looking for automotive-grade ICs or any other electronic components, please don’t hesitate to contact us (service@asianterapart.com/sales@asianterapart.com) at any time.

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1. Adding more alternative options into model selection of PCB design. When facing a sudden shortage in certain parts, there will be more options that can replace the previous ones. This strategy will improve the flexibility and efficiency of procurement procedure, avoid unnecessary waste of time on the approval process of changing module selection for parts, which will help ensure the manufacturing stability.

References:

¹Semiconductor Industry Association. (February 03, 2023). “Global Semiconductor Sales Increase 3.3% in 2022 Despite Second-Half Slowdown.” https://www.semiconductors.org/.

²Semiconductor Industry Association. (September 06, 2022). “Global Semiconductor Sales Increase 7.3% Year-to-Year in July, but Growth Slows.” https://www.semiconductors.org/.

³McKinsey & Company. (June 10, 2022). “Semiconductor shortage: How the automotive industry can succeed.” https://www.mckinsey.com/.

⁴Semiconductor Industry Association. (Mar 27, 2023). “Chip Sales Rise in 2022, Especially to Auto, Industrial, Consumer Markets.” https://www.semiconductors.org/.