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How is the semiconductor crisis impacting the automotive industry?

Semiconductor crisis: impact on the automotive and aviation industries

The worldwide, pandemic-related shortage of semiconductors has severely impacted vehicle production for the European automotive industry.

What triggered this semiconductor crisis? Are we facing a long-term shortage of electronic chips?

What’s a semiconductor anyway?

What do the iPhone 12, the latest hybrid SUV and the Future Combat Air System (FCAS) have in common? The semiconductor – this powerful and complex electronic component so essential to their production. No data can flow through these devices without this millimetre-thin silicon piece of technology.

Who manufactures and supplies those electronic chips?

Semiconductors are manufactured by various types of companies. Some, like Samsung, Intel, SK Hynix and Micron, design and manufacture them in their own factories, while others, like Apple’s supplier Qualcomm, practise fabless manufacturing. This means they outsource the fabrication to semiconductor foundries, for example to Taiwanese giant and global market leader TSMC.  80% of semiconductors are currently manufactured in Asia, mainly Taiwan and South Korea.

What triggered this semiconductor crisis?

The pandemic, the rising demand for electronic equipment and Taiwan’s near monopoly all contributed to the semiconductor crisis currently bearing down on European manufacturers. A major cause is the significant surge in demand for IT hardware (smartphones, tablets, computers, game consoles, etc.), which resulted from consecutive lockdowns and the generalisation of home working. WSTS data indicate that the global market for micro and nanoelectronic integrated circuits skyrocketed by 40% in ten years, reaching 439 billion dollars in 2020. It may even grow by as much as 10.9% in 2021.

Evolution of the world market for micro and nanoelectronic integrated circuits in billions of dollars

Another reason for this shortage is the instability of an industry relying on a product with a relatively short lifespan, which leads to competency and innovation challenges. Now production can no longer keep up with the booming demand. This impacts negatively on all industries using semiconductors, starting with vehicle manufacturing, which has slowed right down.

The automotive industry faces serious and immediate adverse consequences

Foundries tend to prioritise more profitable sectors, such as IT, servers or telecoms. This places car and component manufacturers at a serious disadvantage, as they innovate by fabricating products increasingly reliant on electricity and electronics (intelligent vehicles, assisted driving). The industry’s shortfall is estimated to reach billions of euros.

First hit are purchasing and logistics departments, with their regular needs for imported goods. This leads to significant delivery delays, from a few weeks to several months, and to supply disruptions in many factories. So much so that Peugeot, for instance, had to stop the production of its latest 308 model for three whole weeks.

How does Europe tackle this shortage?

The crisis is forcing the European Union to implement a strategy to reduce its dependency on Asia and thus empower itself in this innovation race.

Europe does count a few leaders in the field, grown out of traditional corporations like Siemens, Thomson or Philips, namely Infineon Technologies (Germany), STMicroelectronics (France/Italy), and NXP (Netherlands).

However, European chips currently account for less than 10% of the semiconductors used in Europe; the rest comes from Asia or the United States.

In a bid to achieve technological sovereignty, in particular vis-à-vis the US and China, Europe is planning to double its current production and secure a 20% share of the world’s integrated circuit market by 2030. How? Through an ambitious investment programme (up to 30 billion euros) seeking both to diversify supplies and support local development. While this response may be beneficial, it does not offer an immediate solution.

Are we facing a long-term shortage of electronic chips?

As the effects of the shortage will continue to be felt into 2022 and even 2023, the semiconductor war is only just starting.

Car and component manufacturers will have to redouble efforts in the next two years and establish reactive supply chain processes that can withstand shortages of Asian components. This is their only chance of avoiding line stoppages or disruptions to their new model launches.

About the author:

Air Time Critical is a European forwarder specialising in emergency air freight from Asia to Europe. Air Time Critical played a frontline role in the semiconductor and the Suez canal crises by enabling our European customers to fly in their essential component supplies from Taiwan, Singapore, Japan or China. Specialist solutions like NFO or priority air freight cut down door-to-door delivery times for ATC customers by 1 or 5 days compared with regular express air freight in the current climate. To find out more, read about our emergency shipment solutions or give us a call.