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Manufacturers and tech players are itching to be untangled from a web of challenges fomenting a global chip shortage that have derailed their production, but those looking to be set free are in for a bit of a wait.

In fact, some automakers fear they may have to live with the problem for years to come.

Earlier this month, Japanese carmakers reported their earnings for fiscal 2020 and the chip shortage was a major topic, as the supply strain has forced a halt to some production.

The gravity of the impact down the road seems to vary from firm to firm: Toyota Motor Corp., for instance, described it as “a small risk.”

But Toshihiro Suzuki, president of Suzuki Motor Corp., shared a far more pessimistic view.

“We think that the semiconductor shortage will become a chronic issue,” he said during an online news conference last week.

Because of the short supply, Suzuki temporarily suspended some production in April and May and is reportedly planning to do so again next month.

“The Biden administration has announced that it is planning a strategic investment in chips … we think Japan needs to unite and tackle this to protect its industry,” Suzuki said. “It’s too large of an investment for one company to take on.”

The administration of U.S. President Joe Biden is calling for a $50 billion investment in production and research for semiconductors in a bid to counter the constrained supplies that began to surface at the end of last year.

Chip demand unexpectedly soared as countries such as the United States and China saw recovery in their economies while the stay-at-home trend amid the pandemic helped boost demand for electronics ranging from computers and video games to home appliances.

It has been hitting automakers especially hard, forcing them to cut production.

Nissan Motor Co. said the chip shortage is expected to slash about a half million units off its total production this fiscal year while Subaru Corp. said it would make 48,000 fewer cars.

On top of surging demand, unforeseen incidents such as a fire at major Japanese chipmaker Renesas Electronics Corp. in March have intensified concerns.

So, the question remains over when supply chains might return to normal.

According to a report released by Gartner Inc. earlier this month, chip supply strain is expected to continue until the second quarter of next year.

U.S. President Joe Biden holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in Washington in February. | REUTERS
U.S. President Joe Biden holds a semiconductor chip as he speaks prior to signing an executive order, aimed at addressing a global semiconductor chip shortage, in Washington in February. | REUTERS

But that outlook is for the overall semiconductor industry and when it comes to chips for auto production, things may be different.

“In Japan, when you think of the auto industry, people think that it’s the top industry, but it’s a really niche segment in terms of semiconductor consumption,” accounting for less than 10% of the overall semiconductor market, said Masatsune Yamaji, an analyst at Gartner.

So when the industry sees a surge of demand for other mainstream chips, such as those for smartphones and data centers, production of automotive semiconductors — a sector that generally isn’t as profitable — can be hit particularly hard.

Demand for automotive semiconductors is expected to rise in the coming years, as vehicles will require more chips for features such as autonomous driving and more connected functions.

“In five years, the automotive chips will probably exceed 10% of the total market share, but it’s still just 10%. It will remain niche,” Yamaji said.

If overall demand for semiconductors swells, carmakers would have to compete with each other to secure inventory, which will result in further shortages — a cycle that Yamaji said is expected to continue.

In fact, this isn’t the first time the auto industry has had to deal with a chip shortage.

Automakers faced supply chain strains in 2017 and 2018, and carmakers pressured chip manufacturers to increase production capacity and volume while parts suppliers also procured a large amount of inventory.

“Then, what happened in 2019? All of a sudden, it turned out that carmakers didn’t need that much,” Yamaji said.

That resulted in an excessive amount of inventory for chipmakers and parts suppliers.

Renesas, one of the top automotive semiconductor producers in the world, had to halt production and layoff employees and its president stepped down.

“I think what happened between 2017 to 2019 will happen again. In fact, it is happening now,” Yamaji said.

Renesas, one of the top automotive semiconductor producers in the world, had to halt production and layoff employees after excessive production in response to a previous chip shortage. | REUTERS
Renesas, one of the top automotive semiconductor producers in the world, had to halt production and layoff employees after excessive production in response to a previous chip shortage. | REUTERS

Apparently making use of lessons learned from the past, the Ministry of Economy, Trade and Industry, plans to launch a working group consisting of representatives from carmakers to mitigate the impact of the chip shortage by changing their attitude toward chipmakers and suppliers.

The group is expected to discuss how carmakers can present more well-thought-out production plans for them.

“Some carmakers just order parts without showing production plans. Even if they have production plans, how closely it reflects actual demand is questionable,” a METI official said.

Without well-thought-out approaches, “parts suppliers and chipmakers can’t really come up with their production and investment plans,” the official added, indicating a desire to avoid a repeat of the past.

The group will also likely discuss ways to deepen the direct relationship between carmakers and chipmakers. Because it is part suppliers that actually procure chips, communication usually takes place between parts suppliers and chipmakers.

“For automakers, chipmakers were just somebody behind multiple layers of suppliers,” but the situation has changed amid the global shortage, so automakers need to establish “a fairer relationship” with them, another METI official said.

“If automakers communicate directly, chipmakers can see their faces. It would make a quite different impression compared to getting requests from people they’ve never talked to directly.”

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