The year 2021 was destined to be an extraordinary one for the automotive industry. Starting from the beginning of the year, the wave of chip shortages, both large and small, seemed to be never-ending. The automotive industry, as a "severe disaster area" of the chip shortage wave, has undergone various transformations during these continuous shortages. Among these changes, an unprecedentedly close relationship has emerged between automakers and chip manufacturers – car companies have begun to form alliances directly with chip manufacturers.
The chip shortage crisis forces automakers to team up with chip manufacturers
Recently, Mark Reuss, President of General Motors in the United States, stated that the company will jointly develop chips with seven semiconductor companies in North America to address the global chip shortage problem.
Clearly, due to the unprecedented global shortage of automotive chips this year, major car manufacturers have been forced to re-examine the chip supply chain. With the rising demand for chips in electric vehicles, in order to ensure a stable supply, car manufacturers have also started to form alliances with chip manufacturers.
Teng Ran, General Manager of the Integrated Circuit Industry Research Center at CCID Consulting, said that before the current wave of automotive chip shortages, automakers rarely had direct business dealings with chip manufacturers. In the entire industry supply chain, tier 1 suppliers (tier 1 manufacturers) occupied a relatively dominant position, procuring the required chips and electronic components. This supply chain model is beneficial for improving the efficiency advantages of vehicle manufacturers and reducing capital costs.
However, the wave of chip shortages at the beginning of this year, driven by the pandemic, has been particularly severe, catching both car manufacturers and chip manufacturers off guard.
Teng Ran introduced that the traditional supply chain management model, due to the long intermediate chain, resulted in a lagged response from upstream chip manufacturers when downstream demand fluctuated, with a significant bullwhip effect, which amplified the chip demand gap for vehicle manufacturers. Additionally, the large-scale shutdowns and production halts caused by the pandemic earlier led to the current massive chip shortage.
Moreover, Huang Ji, General Manager of Saitron Micro, pointed out that the MCU, as a "severe disaster area" in the automotive industry's chip shortage, has experienced such a shortage, which to some extent indicates that manufacturers were not timely in responding to the market. However, for MCU manufacturers themselves, it is impossible to have an accurate prediction of the market, and close communication between the upstream and downstream industries is needed to predict market crises in advance and prepare accordingly. This crisis also reflects the poor connection between the upstream and downstream supply chains, leading to poor communication and inadequate grasp of market risks.
"For a long time, chip suppliers have been passive and found it difficult to interact positively with the upstream and downstream industries. For example, chip manufacturers often encounter issues with customers delaying payments, making it difficult for chip manufacturers to secure funds in advance for inventory preparation, which easily leads to being caught off guard during a supply crisis. This market crisis has affected multiple links in the upstream and downstream industrial chains, so it cannot be successfully navigated through the efforts of chip manufacturers alone. It requires deep communication with upstream and downstream manufacturers to weather the storm together," said Huang Ji.
Transition from linear management to parallel management
After experiencing the severe chip shortage crisis, car manufacturers have re-examined the chip supply chain. With the rising trend of electric vehicles, the importance of chips to car manufacturers cannot be overstated, prompting them to rethink their chip supply chain management methods. Choosing to form an alliance with chip manufacturers represents a shift from a linear management model to a multi-line parallel management model.
Lü Pinghao, a senior consulting advisor at the Integrated Circuit Industry Research Center of CCID Consulting, said that previously, automotive manufacturers' supply chain management was a linear model, only needing to manage downstream suppliers, and not directly participating in the management of suppliers' suppliers. However, when automotive manufacturers collaborate directly with chip manufacturers, it means that the automotive manufacturers' supply chain management model will be more grounded, managing every level of supplier, forming a multi-threaded parallel management model.
"The biggest benefit of this management model is that automotive manufacturers can more directly understand the real situation at each link and respond more directly and effectively. In the previous management model, it took a long time for information to be transmitted between supply chains, which caused the upstream chip manufacturers to respond to the market untimely, thus triggering the chip shortage wave," Lü Pinghao said.
"Self-developed chips" are a long-term solution not a quick fix
Although the large-scale chip shortage has eased somewhat, with the continuous changes in the automotive market demand, some areas still face severe shortages. Teng Ran introduced that looking forward to 2022, the automotive shortage situation is expected to further diverge, with chips like MCUs and power semiconductors continuing to be in short supply. Taking power semiconductors as an example, with the significant increase in market demand for new energy vehicles in the second half of this year, power semiconductor