China's chip shortage is significant, but it might be resolved within two to three years if the nation reorganizes its automotive and electronic industries like the rest of the world.
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| [China and semiconductor shortage] |
Two years ago, a crisis in the chip and semiconductor industry began to unfold. The origins of this issue can be traced back to two primary factors: first, the slowdowns brought on by the pandemic, and second, an ever-increasing demand.
What was formerly a high-volume transaction with a limited margin of profit has the potential to become a jackpot for certain participants in the current environment. The wait periods for auto chip orders are still rather lengthy all around the globe; however, the attention of thousands of brokers is now being focused on China since it has become the hub of a severe shortage that the rest of the industry is progressively working to address.
According to a review of automotive chips made by the world's top five manufacturers that was carried out by Reuters, new orders take more than a year to be delivered on a global scale. In response to a decrease in the available supply, major international car manufacturers such as General Motors, Ford, and Nissan have taken steps to improve their access to the component market. These measures include negotiating directly with chip manufacturers, paying a premium price for each component, and committing to provide more stock.
China among the hardest hit by the chip crisis
According to many people who are involved in the trade, including automakers, suppliers, and brokers, as well as experts from the Chinese government's affiliated automotive research institute CATARC, the outlook is more bleak for China. This is the consensus among many people who are involved in the trade. China is the world's biggest automotive producer and the industry leader in electric vehicles; nevertheless, the country imports virtually all of its chips from Europe, the United States, and Taiwan. A complete lockout at COVID in Shanghai, which resumed operations only one month ago and is a significant center for car manufacture, has had an additional negative impact on established supply networks. According to the projections made by the China Automotive Technology and Research Center (CATARC), the scarcity is worse in China than it is in other areas of the globe and poses a risk to the forward momentum of the country's electric vehicle industry. Given the current state of affairs, it is very doubtful that a newly emerging domestic chip manufacturing business would be able to satisfy demand for more than two to three years.
Chips, also known as semiconductors, are utilized in large quantities in every modern automobile, including those powered by internal combustion engines as well as electric motors. They are in charge of everything, from the deployment of the airbags and the automation of the emergency brakes to the navigation and entertainment systems. Infineon, Texas Instruments, NXP, STMicroelectronics, and Renesas are examples of some of the companies that contributed chips to the poll that Reuters conducted in June of last year. These chips are used in a variety of automotive applications. As a direct consequence of this, new orders placed via distributors are now on hold for an average of 49 weeks (up to the end of 2023). This research presents a glimpse of the scarcity on a worldwide scale; however, it does not make it possible to provide a precise image of the deficit on a regional scale. Nevertheless, birth times may range anywhere from 6 weeks to 198 weeks.
The German semiconductor manufacturer Infineon told Reuters that it is "rigorously developing and increasing production capacities throughout the globe," but that shortages of chips that are handed to foundries might continue until 2023. "As the geopolitical and financial situation has worsened in recent months, it is almost impossible to make meaningful estimates of the end of the present shortages at this time," Infineon noted in a statement. "This is due to the fact that recent months have passed."
United Microelectronics Corp., a chip producer based in Taiwan, told Reuters that it was able to reallocate part of its capacity to the production of autonomous chips since demand in other markets was lower. According to the statement made by the corporation, "Overall, it is still challenging for us to satisfy aggregate client demand."
Galen Tseng, an analyst for TrendForce, told Reuters that if auto suppliers needed 100 PMIC chips — the type that regulate the voltage from the battery to more than 100 applications in a typical car — they would currently have around 80 available. PMIC chips are responsible for distributing the voltage from the battery to each of the applications.
In contrast to the tight supply circumstances in China, brighter supply prospects for global automakers are on the horizon. Volkswagen said at the end of June that it was anticipating an improvement in the availability of chips in the second half of the year.
Last month, William Li, president of a Chinese company that manufactures electric vehicles and is known as Nio, said that it was "impossible to foresee which chips would become rare." Nio makes frequent changes to what it calls its "risky chip list" in order to prevent running short on any of the more than 1,000 chips that are required to keep production running.
At the end of May, a video was posted online by a Chinese company that manufactures electric vehicles called Xpeng Motors. In the video, a figure of the Pokemon character Psyduck was seen waving two pieces of paper that read "urgently needed" and "chip."
This video demonstrates the present state of our supply chain, as Xpeng CEO He Xiaopeng stated on Weibo. "As the automotive supply chain in the rest of the globe progressively recovers, this video reveals the current situation of our supply chain." He Xiaopeng mentioned how difficult it was for his firm to get the "affordable chips" that were necessary to manufacture automobiles.
The rush to find temporary solutions has prompted local carmakers and suppliers to turn their attention to Shenzen, China's largest chip trading hub, using the "gray market," which is a place where supplies that are legally sold but not authorized by the UK can be purchased. This is because of the urgency with which the problem needs to be resolved. original manufacturer, in accordance with information provided by those directly engaged in the electric vehicle marketplace in China. The gray market is fraught with danger since semiconductor chips are often recycled, given the wrong labels, or kept in circumstances that cause them to ultimately fail.
Some industry experts believe that the role played by brokers is "hazardous," given that, according to their estimations, chip prices are anywhere from 10 to 20 times higher than they would normally be. However, given the current climate, a significant portion of chip buyers are forced to rely on brokers in order to fulfill their purchases. This is due to the fact that the licensed supply chain is unable to meet the demand of customers, particularly smaller customers in the automotive or industrial electronics industries.
Many of the electronic brokers who are currently operating in Shenzhen came to the city because of the surge in prices, but the vast majority of them had almost no knowledge of the technology that they were buying and selling, and they did not have an understanding of how the chips actually function. the inside of a motor vehicle. On the other hand, experts believe that even while it is impossible to estimate the amount held by brokers, it is possible to say with absolute confidence that it is nothing near adequate to supply the demand that exists. In point of fact, it is a commonly held belief among experts and brokers that there may be a financial bubble brought on by inventories of unsold chips in Shenzhen in the event that the supply returns to its usual level.
China, whose sophisticated chip design and manufacture is still behind that of its global rivals, is spending to lessen its dependency on chips imported from other countries in the same way that the European Union is doing via a focused EU strategy. However, this will not be a simple task, particularly when considering the tight criteria placed on automotive chips.
MCUs, which are electronic devices integrated on a single electronic circuit, account for approximately 30 percent of the total cost of chips in a light vehicle. However, according to CATARC, MCUs are also the category in which China will have the most difficulty achieving self-sufficiency. This is especially true when taking into consideration the fact that Chinese car manufacturers have only entered the market in the lower price ranges, primarily using chips for air conditioning and seat controls. According to the projections, two or three more years will need to pass before obtaining self-sufficiency, and around 95 percent of semiconductors will continue to be imported from other nations. Optimistically, self-sufficiency will not be reached for another two or three years.
"China has long been struggling with its inability to be totally independent in chip manufacturing, knowing that this constitutes a major weakness in its economy," said Victor Shih, a professor of political science at the University of California, San Diego. Shih is quoted as saying that "China has long been struggling with its inability to be totally independent in chip manufacturing." However, over the course of time, he has the potential to build a powerful domestic industry, similar to what he did when he identified battery manufacturing as a national priority. This is a path that, according to Shih, "led to a lot of waste and failures, but which later resulted in life to two or three giants who now dominate the global market."