If you have gone into a dealer showroom recently, you may have been surprised by the absence of products on display, the lack of incentives and high pricing. All of this is the consequence of major disruptions in the automotive supply chain and more specifically of shortages in semiconductors. On average, a vehicle will contain about 1,400 semiconductors and this content is expected to rise to about 2,500 by 2023 because of the electrification of powertrains, ADAS systems and connectivity. At the end of the spectrum, an Hybrid vehicle will consume over 3,500 semiconductors due to the complexity of the powertrain. In 2019, automotive applications represented 12% of semiconductors sales vs. 33% in communications and 28% in computers.
The disruptions in the supply chain are expected to cause the automobile production volumes in North America to reach 13.8M units in 2021, that is a only 0.9M more than in 2020 at the peak of the pandemic and 19% below the average pre-COVID level.
The causes for such shortage are multiple and can be best summarized as follow:
• With the rise in global standard of livings and the growing reliance on electronic applications in our everyday life, the semiconductors industry anticipated in 2018-2019 that the capacity in place would reach its limit in the 2022-2023 timeframe.
• Accordingly investments, in the South East Asia region and North America, were scheduled but halted in 2020 because of lockdowns and uncertainties regarding the timing of the rebound.
• Inversely during that time, demand for electronics soared alongside the generalization of remote work arrangements – in other words, sales of HD TV’s for home entertainment and notebooks for schools and work exploded – effectively pulling ahead the capacity shortage from the 2022-2023 period to 2020-2021.
• Investments in production capacity increases by Intel, TSMC, TI, etc. have resumed and even accelerated but will not deliver the expected relief until 2023.
• The automotive industry with its low margins, demanding terms and laser focus on costs is not the best positioned vs. other industries to leverage semiconductors suppliers in prioritizing their requirements.
Carmakers are responding to this situation by allocating whatever semiconductors supply they get to their most successful and high margin models, by limiting the number of functions requiring electronics in the new vehicles they produce and by building up inventories of unfinished vehicles while awaiting for new supply of semiconductors to come. Normal production levels are not expected back until the first half of 2023, and lost volume recovery not before 2024.
This report was made possible thanks to the valuable input and contribution of Ducker Worldwide | Market Research, Strategy Consulting and Transaction Advisory, your partner in strategy.
Cédric Ballarin
