This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.
| 2 minutes read

What's happening post chipaggedon?

Whilst the external noise around the shortage of chips to the Auto industry seems to be reaching its peak, the hard work to implement real change is accelerating. The production loss of so many vehicles at a time when cash was so critical has focused the minds – with the global impact likely to exceed 2 million vehicles and $60B this year - the race is on to redesign the entire supply chain.

The race has three main dimensions:

First is control over supply. OEMs have typically been supplied semiconductors already embedded in assemblies from their tier 1 suppliers. These suppliers having bought from either integrated companies (IDMS) or often fabless companies which use a network of foundries to manufacture their designs. These large foundries need better demand assurance to continue to maintain and invest in aging technologies when profits from leading technologies vastly outweigh older generation components like those prevalent in automotive. With semiconductor capacity decisions often made years in advance, automakers need to change their ways to directly communicate long-term demand and secure capacity agreements. Directly sharing in the risk of maintaining or even increasing capacity in older semiconductor technologies will be a key topic as silicon share increases in automobiles.

Second is accelerating the move to newer technology. In comparison to consumer electronics, the Auto industry typically uses older generation semiconductors. System on a Chip (SoC) and newer 5 nanometer technology has multiple benefits, the most valuable of which is delivering the processing power needed to enable advanced infotainment systems and autonomous navigation. These future needs, combined with the desire to bring electronics in house, mean that as OEMs have grown their software functions, the forward thinking ones are putting a similar focus on the silicon chips themselves. In effect this means adopting a practice common in the consumer products industry of developing multi-year roadmaps to identify optimal transition points in order to effectively transition current-generation designs to next-generation fabs.

Third is who contracts with whom now and in the future. The split between design and manufacture looks to continue. The OEMs that have taken the leap to design their own semiconductor components need to partner with foundries who have (or will establish) the capacity to supply them. The others are establishing partnerships with their IDMS or fabless suppliers to do the same. In the latter case it is conceivable that a future state would have the OEM pay for R&D and manufacture separately, requiring a meaningful change in design philosophy and capability, as well as sourcing and lead time guarantees, with significant impact on the accounting and inventory roles.

And as the rest of the industry continues to be disrupted by Covid and C.A.S.E (Connected, Autonomous, Shared, Electric), completely redesigning engineering and supply chain for semi-conductors is likely one of the last things Auto execs were hoping to do. With EVs starting to really take hold, control over electronics is here to stay. In order to not only thrive, but survive, both OEMs and their partners will need to be on the front foot.

And as the rest of the industry continues to be disrupted by Covid and C.A.S.E (Connected, Autonomous, Shared, Electric), completely redesigning engineering and supply chain for semi-conductors is likely one of the last things Auto execs were hoping to do.

Tags

auto, technology, semiconductors, oem, car industry, electric vehicles

Related Insights

post featured image