Automotive Semiconductor Outlook and the Semiconductor Shortage – an update from Strategy Analytics

Our latest quarterly update of the outlook for?automotive?semiconductor?demand has just been released. Automotive Semiconductor Demand Forecast 2019 to 2028 - July 2021 forecasts a steep return to growth augmented by the continued momentum towards?electrification. This forecast outlook includes an anticipation of vehicle production stabilising globally, but there are ongoing risks associated with the shortage in semiconductor supply as well as additional waves of the COVID-19 pandemic hitting regional production centres.

Update on the Impact of Semiconductor Shortages

The demand for semiconductors from the automotive industry extends across all device types and includes processors, power, linear, optoelectronics, memory etc. While individual occurrences such as industrial action or accidents can have an impact on the supply of semiconductors and chipsets for specific applications, these do not constituent the primary cause of the current shortages being experienced by the automotive industry. Instead, the primary cause can be traced back to vehicle production shutting down resulting in automotive semiconductor demand being scaled back considerably in the second quarter of 2020.

The return in demand was led by Chinese vehicle production and was followed by a return to production in the other major production centers resulting in a sharp expansion in automotive semiconductor demand. However, the automotive industry was then faced with several issues in trying to make up both a shortfall as well meet the resurgent demand.

• Changes in working patterns due to lockdowns had shifted the focus for semiconductor suppliers towards supporting electronics equipment demand for smartphones, IT and audio-visual equipment as well as the introduction of new generation consoles from Sony and Microsoft.
• The dedicated semiconductor manufacturing capacity available for the supply of 8-bit, 16-bit and 32-bit MCUs, based on older process nodes and smaller diameter production, was quickly filled up and this was then further compounded by further constraints in the material supply chain.
• Despite this, the volume demand from the automotive industry pales in comparison to the demand from mainstream electronics which resulted in the major semiconductor suppliers prioritizing demand from the smartphone, IT, audio-visual and other consumer electronics, and effectively placing the automotive industry at the back of the queue.

In the first quarter of 2021, there were a further confluence of events that conspired to further impact semiconductor production including an earthquake in Japan and snowstorms in Texas, US. Another factor that semiconductor manufacturers needed to account for is a drought in Taiwan.

A fire at a Renesas facility represented another setback for the automotive supply chain (Notably, recent Ford management comments specifically referenced Renesas during their discussions of the semiconductor supply situation). Production at the affected 300 mm Renesas line is focused on MCUs and SoCs targeting automotive, industrial and other applications. An early assessment from Renesas suggested that the resumption of normal production would take at least one month but this was later revised to three months.

• Renesas moved some production to other facilities as well as seeking additional support from its foundry partners allowing limited production to resume in April.

There was also an accidental power cut at one of TSMC’s facilities though the company’s initial observations were that production was not impacted too much.

It is clear that the combined impact of semiconductor shortages in general, combined with these other events has impacted light vehicle production. All the major OEMs have reported on the impact of semiconductor shortages with even those companies that were initially better prepared, e.g. Toyota now regularly advising of adjustments to their production lines as the impact of the semiconductor shortage has snowballed. This has also resulted in OEMs adopting a range of measures to alleviate the situation which include:

• Allocation of semiconductor and other resources to production lines focused on the most profitable and/or high-volume brands and nameplates.
• Ongoing reduction in shift hours through the next six to nine months.
• Vehicles produced but with final finishing delayed until certain components are secured.
• Vehicles produced with certain non-critical components missing that allow a vehicle to be finished with the final production vehicle noting a minor reduction in aesthetics, performance or fuel economy.
• Temporary shutdown of production lines.

We believe that there remains a scenario where the ongoing challenges in the supply chain will result in vehicle production being impacted further than originally estimated with the loss in production attributable to semiconductor constraints as high as 5 – 10% for 2021. However, we also note that comments from TSMC (in April 2021) and most recently, the management comments from automotive OEMs and the broader supply chain, suggest that while the overall semiconductor shortage may last into 2022 and possibly even through to 2023, the situation for the automotive industry will start to see signs of improvement from Q3 onwards which will limit the overall impact to light vehicle production.

Feel free to contact me to discuss this post and the underlying questions raised.

Also check out our latest quarterly view of the global outlook for?automotive?xEV?systems?and associated?semiconductor?and?sensor?demand. Global xEV Semiconductor Demand Forecast 2019 to 2028 - July 2021 ?predicts continued momentum pushing market demand to $21.8 billion by 2028.

For more information on Strategy Analytics’ extensive coverage of the automotive industry, take a look at the PBCS (Powertrain, Body, Chassis & Safety), AVS (Autonomous Vehicles Service), AIT (Automotive Infotainment and Telematics) and ACM (Automotive Connected Mobility) services.