What were “war room operations” to manage chip shortages are becoming built-in features of vehicle development, executives from both industries say. This has shifted the risks and some of the costs to the car manufacturers. New groups such as General Motors Co, Volkswagen AG and Ford Motor Co are trading directly with chipmakers. Automakers such as Nissan Motor Co Ltd and others are accepting larger order commitments and higher inventories. Key suppliers, including Robert Bosch and Denso, are investing in chip production. GM and Stellantis have said they will work with chip designers to design components. Overall, the changes represent a fundamental shift for the auto industry: higher costs, more hands-on work in chip development and more capital commitment in exchange for better visibility into chip procurement, executives and analysts say. It’s a shift for automakers that previously relied on suppliers – or their suppliers – to supply semiconductors. For chipmakers, the still-growing partnership with car makers is a welcome – and overdue – reset. Many semiconductor executives point the finger at automakers’ lack of understanding of how the chip supply chain works — and unwillingness to share costs and risk — for much of the recent crisis. The costly changes come as the auto industry appears to be reeling from the worst of an even costlier crisis that has cut an estimated 13 million vehicles from global production since early 2021. CC Wei, chief executive of the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co, said he had never had an auto executive call him – until the shortage was desperate. “For the last two years they’ve been calling me and treating me like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. An auto manufacturer called to urgently request 25 wafers, said Wei, who is used to placing orders for 25,000 wafers. “No wonder you can’t get the support.” Thomas Caulfield, chief executive of GlobalFoundries Inc, said the auto industry understands it can no longer leave the risk of building multibillion-dollar chip factories to chipmakers. “You can’t have one element of the industry carrying the water for the rest of the industry,” he told Reuters. “We won’t put in capacity unless the customer has committed to it and has ownership status in that capacity.” Ford announced that it will work with GlobalFoundries to secure its chip supply. Mike Hogan, who heads GlobalFoundries’ automotive business, said more such deals are in the works with other automakers. SkyWater Technology Inc, a Minnesota chipmaker, is in talks with auto makers to put skin in the game by buying equipment or paying for research and development, Chief Executive Thomas Sonderman told Reuters. Closer cooperation with carmakers and their suppliers has brought onsemi $4 billion in long-term deals for silicon carbide power management chips, a new material that is gaining popularity, said CEO Hassane El-Khoury. “We’re investing billions of dollars every year to scale this operation,” he told Reuters. “We’re not going to build factories on hope.” Michael Hurlston, CEO of Synaptics Inc, whose chips drive touchscreens that have stalled car production, said the recent, more direct partnership with carmakers could create new business opportunities as well as manage risks. Hurlston said the auto industry has started using OLED screens, which are less durable than LCD screens, a factor many perceive would limit their use in cars despite their better contrast and lower power consumption. “But that perception has changed quite dramatically in the last couple of years. And that perception has changed as a direct result of being able to talk (the auto industry),” he said. “The paradigm has really, really changed for us.” Executives at Japan’s Renesas Electronics Corp and Dutch NXP Semiconductors NV both told Reuters they are co-locating engineers to help carmakers design a new architecture where a computer will centrally control all functions. “They woke up,” said NXP CEO Kurt Sievers. “They have understood what is needed. They are trying to find the right talent. It’s a big change.” Average semiconductor content per vehicle will exceed $1,000 by 2026, doubling from the first year of the pandemic, according to Gartner. An example: the battery-powered Porsche Taycan has over 8,000 brands. That will double or triple by the end of the decade, according to Volkswagen. “We understand that we are part of the semiconductor industry,” said Volkswagen Group’s Berthold Hellenthal, senior director for semiconductor management. “We now have people dedicated to strategic semiconductor management.” Unlike Tesla Inc, which designs its own core chips, Simoudis said traditional carmakers will have to juggle production of older car models as they make new investments. AutoForecast Solutions (AFS) estimates that microchip shortages have forced automakers worldwide to cut more than 13 million vehicles from their production plans since the start of 2021. “It’s an arrogant industry,” said Sam Fiorani, vice president of global vehicle forecasting at AFS. “Sometimes it just bites them in the rear.” Be smart with your money. Get the latest investment information delivered straight to your inbox three times a week with the Globe Investor newsletter. Sign up today.
