The auto supply chain has been significantly affected by the semiconductor shortage worldwide, which are essential components for electric vehicle production. With the ongoing supply chain constraints, partially brought on by the COVID-19 pandemic, automakers have been prompted to reduce production schedules in the past two years.
Finally, stringent COVID-19 controls and regulations, especially in China, have now subsided as the outbreak gradually fades. Now, industry experts project that the semiconductors shortage may end this year.
“There is no doubt China’s rigid COVID policy put a lot of strain on many companies. With the easing of restrictions, it will help alleviate some transportation issues and shutdowns, which will help get people back to work and ultimately improve the supply chain.”
Jennifer Strawn, Rand Technology’s Global Solutions and Sourcing VP (via Automoblog)
Semiconductors shortage improvement
Indeed, the semiconductor shortage has adversely affected global automakers since 2020. That said, it is not surprising that AutoForecast Solutions’ global vehicle forecasting VP Sam Fiorini projects that automakers will still be prompted to cut 2 to 3 million units from their expected production in 2023.
Nonetheless, that projection would greatly improve the global semiconductor shortage situation. In retrospect, global automakers reportedly cut over 10.5 million EVs from their production in 2021.
Even more, they further reduced about 4.3 million units from their production in 2022. That said, this year’s projection indeed shows major cut reductions in EV production.
Global semiconductor industry outlook for 2023
The Global Semiconductor Alliance (GSA) and accounting firm KPMG recently published the results of the 18th annual global semiconductor survey for Q4 of 2022.
The study surveyed 151 semiconductor executives regarding their 2023 and future outlook on the industry. It must be noted that most of the respondents are firms that report an annual revenue of over $1 billion.
“Will the Semiconductor Supply Chain Improve in 2023?”
Remarkably, 65% of the semiconductor executives believed that the semiconductor shortage would improve this year. 20% answered that it will end beyond 2034, while the remaining 15% believe that the situation is “balanced already.”
The results revealed that 56 out of 100 is the current standing of the Semiconductor Industry Confidence Index for 2023. That said, more than 50% of the respondents are optimistic about this year’s semiconductor shortage improvement.
“When Will We See an End to the Chip Shortage?”
When asked about their projection of the chip shortage’s end, 36% answered that the industry cannot expect a surplus until 2024 to 2026. Meanwhile, 31% believe a surplus will occur as soon as this year. The 24% answered that there is already a surplus, while the remaining 9% argued that there would not be a surplus in the following four years.
The 2023 forecast for automakers is uncertain
The adverse effects of the global semiconductor shortage have been different for automakers. For instance, BMW, Mercedes, and Volvo reportedly avoided any severe issues related to the semiconductor shortage in H2 2022. At the same time, Nissan, Hyundai, and Volkswagen experienced an improvement in the situation compared to when they started in 2020.
However, many automakers across the world, including Honda, General Motors, Ford, and Toyota, are still struggling to overcome the semiconductor shortage in H2 2022. General Motors also stated that the shortage would end beyond 2023.
“While the chip shortage is improving, there is still uncertainty about semiconductor supply availability. Increased buying during the peak of the electronic component constraints and decreased demand for consumer electronics at the end of 2022 left many [original equipment manufacturers] OEMs and contract manufacturers with an imbalance of inventory.
In some instances, they have a surplus. However, many are still missing the ‘golden screws’ – the parts needed to complete production.”
Jennifer Strawn, Rand Technology’s Global Solutions and Sourcing VP (via Automoblog)
Fortunately, some automakers managed the shortage by effectively allocating the semiconductors in their technologies.
Semiconductor manufacturers increased production capacity
Semiconductor companies reportedly increased production capacity to meet the demand for the said component.
Last year, German chip maker Bosch committed over $1 billion to boost production. It further announced plans to invest an additional $3 billion for production capacity expansion in the coming years.
In August last year, Wolfspeed launched the US‘ first-ever semiconductor production facility in Marcy, New York. It is a $1 billion plant that manufactures about 200-millimeter silicon carbide wafers for local and foreign automakers.
The investments had not stopped there, as Semiconductors.org claim that the industry has pledged over $200 billion in investment after the “Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act” took effect.
That said, there would indeed be a significant increase in production capacity for the semiconductor in 2023. However, Jennifer Strawn seems to think otherwise.
“The issues don’t just concern high-level infrastructure. The sub-infrastructure must also be ready to tackle future demands. An investment into new wafer foundries, substrates, OSAT [outsourced semiconductor assembly and test] capability and producing and sourcing key raw materials – including cobalt, palladium, copper, neon gas, and others – is required to support the build-out, and meet next-gen hardware needs.”
Jennifer Strawn, Rand Technology’s Global Solutions and Sourcing VP (via Automoblog)
Geopolitical factors
Interestingly, geopolitical factors also had a significant effect on supply chain issues across the world. The supply chain is sensitive to governmental regulations and geopolitical upheavals because the semiconductor industry is a global business.
In fact, the China-US trade issues regarding the semiconductor supply have escalated in the past months.
The US implemented wide export restrictions that ultimately impeded Chinese firms from securing semiconductor supply. It has also restricted green card owners from applying for job positions at certain Chinese chip firms.
In response, Chinese authorities filed a complaint with the World Trade Organization on December 15, 2022, claiming that the said restrictions have jeopardized the “the stability of the global industrial supply chains.”
Another geopolitical factor that prolonged the global semiconductor shortage is the Russian-Ukraine war. In retrospect, Ukraine was among the world’s major suppliers of semiconductor raw materials, like neon gas.
Given the ongoing war, the country has been impeded to continue generating the raw materials. Hopefully, the invasion will end this year to enable Ukraine to continue its operation for the critical raw materials for the highly in-demand semiconductor.
Experts suggest semiconductor shortage to end in 2023
Industry experts project that the shortage will finally end by the end of this year. However, others argue that it will persist until 2024.
Hopefully, the increased production of the key component for EV production will effectively aid the ongoing global supply chain constraints.
“Indicators of improvement would be consistent and ongoing deliveries from factories. Lead times would also improve significantly.”
Jennifer Strawn, Rand Technology’s Global Solutions and Sourcing VP (via Automoblog)
