Industry Insights: Automotive Chip Shortage Explained

On August 14, 2023, Business Korea published a report revealing that competition within the automotive semiconductor market, specifically those below the 10nm threshold, is intensifying. This shift is moving away from conventional production specifications and redirecting toward the creation of high-performance chips integrated with CPUs. The driving force behind this transformation is the advancement of electronics-based vehicle technologies, including autonomous driving and in-car entertainment systems.

Further insights emerged from a Reuters article on August 11, indicating that due to the sluggish recovery of the German chip supply chain and the anticipated growth of future automotive semiconductor needs, companies like Intel and TSMC in the United States have unveiled plans to establish manufacturing facilities in Germany. A senior executive at Audi also expressed that the scarcity of automotive chips might persist until at least 2030.

During these developments, it's clear that the landscape of automotive semiconductors is undergoing significant changes. A few noteworthy statistics are in order. Before the rapid evolution of smart vehicles, a conventional car contained around 500 chips on average. However, in the current scenario, the average number has surged to 1,400 chips, stemming from over 8,000 different varieties. In some advanced smart cars, the chip count can soar as high as 5,000 per vehicle.

Remarkably, Bloomberg, on August 17, pointed out a projected 6% drop in mobile phone shipments for 2023, attributed to a sluggish global economy and deflation in China.

This prompts a thought-provoking observation: our cars are increasingly resembling mobile phones. While the mobile phone industry is grappling with limited demand growth due to a lack of significant distinguishing features, the automotive sector is pushing the boundaries of intelligence and entertainment, effectively welcoming high-performance CPUs from one industry to another. There are a few things we must note.

1. According to data from IC Insight, by 2023, about 90% of the world's production capacity will remain above 10nm. Therefore, considering the expectations of future automotive automation, automotive semiconductor chips must be in short supply in the short term.
2. If all high-performance chips for vehicles are satisfied, will everything go well? The answer is still not necessarily. Referring to the number and types of single-vehicle chips we mentioned earlier, we must realize that more than 80% of each car is still a basic chip. When their demand doubles, will the market accurately match the terminal demand?
3. So, if the quantities of demand and supply both match, can the problem be solved? The answer is still not necessarily. Here we need to understand a problem, which is the consideration of functional safety. To give a simple example, a chip running on a mobile phone has a relatively simple environment, and if a problem occurs, it will be more acceptable to consumers. But imagine the environment in which a running car is located, cold winter or hot summer, and the potential safety hazards that may be brought to consumers after chip problems are very serious. Therefore, the standard certification that automotive chips need to meet or pass is more stringent.
4. The process is complex, and automotive semiconductors with more stringent standards naturally require a new factory development cycle. Coupled with the combined effect of the external economic environment, high industry barriers, and geopolitics, it will indeed take more time to achieve a comprehensive increase in production capacity.

In conclusion, the shortage of automotive chips will likely persist in the medium term. It's important to note that diverse opinions exist regarding the future of automotive chip development in the market. Regardless of perspective, these transformations are spurring the industry to hasten the deployment of technology and production capacity. The collective efforts, irrespective of direction, are steering the industry toward a more holistic evolution and maturity.

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