Is The Global Semiconductor Shortage Forcing Carmakers To Think Outside The Box?
Parth Dutt
Indian Car Market
Est. Reading Time:
3 mins

Is The Global Semiconductor Shortage Forcing Carmakers To Think Outside The Box?

Parth Dutt

The global semiconductor shortage has wreaked havoc on the global auto industry, but it has also forced automakers to be creative in how to source computer chips, or even if sourcing them is the right choice. Whether they decide to buy directly from the manufacturers or finish production without relying on the missing parts, or even manage to reconfigure vehicles!

Production had been put on hold worldwide after the global semiconductor shortage due to the pandemic. Important to the production of the vehicle, their shortage has led to millions of vehicles facing a halt in production. This issue has already lasted longer than anticipated, so has the pandemic to be fair, and thus automakers have resorted to rethinking strategies. 

As for the actual purchasing, there seems to be a hierarchical system. Manufacturers buy their supplies and parts from major suppliers, and they, in turn, source from other suppliers down the hierarchy. This has brought up the very relevant issue of transparency, or lack thereof, in the market. Valid questions arise about the sourcing of the chips, which, as it turns out, come from the same supplier. Ondrej Burkacky, a senior partner at McKinsey, said, “There was the fallacy of thinking that you had a choice between two suppliers, but the truth is that they both had the chips made in the same foundry.” The only seeming difference is how it is “sourced”- directly or via middlemen like Bosch and Continental, the major supplier chains.

Mercedes-Benz is the first in line to abolish this sourcing loophole and has established a direct line of communication with chip suppliers, including suppliers in Taiwan. They will partner with manufacturing units in Taiwan, as said in a statement in September at the IAA auto show. Volkswagen, too, is said to be in talks with manufacturers in Asia. Herbert Diess, Volkswagen’s boss, hinted at “strategic partnerships” the company is working on.

Stefan Bratzel from the Center for Automotive Management spoke about how the suppliers need to have a better footing in the automotive industry to minimize further problems. “You have seen the problems that arise when you treat the chip companies like other suppliers and stop the calls,” he said.

McKinsey’s Burkacky said carmakers should consider direct investments in production or longer contracts with terms of more than 18 months. “Not much of that has been implemented yet,” he added.

Apart from this, carmakers are also figuring out ways to help manufacturers cover the gaping hole between supply and demand. This is where reconfiguration of pre-existing systems comes in. Volkswagen is looking for ways to reduce semiconductor usage and limit to absolute necessity. Annette Danielski, the chief financial officer of Volkswagen’s trucking unit Traton, said, “If we change the software, we can use fewer semiconductors and achieve the same functionality.” 

In clearing away some space from the control system’s motherboards, there would be a lesser need for the semiconductor chips. However, it is a slow process. “That sometimes takes a long lead time because the regulatory authorities intervene, but there are areas where you can change something quickly.”

Automaker Daimler is also looking to redesign control units, modeling this after Tesla. The company reprogrammed software within three months so that other less scarce chips could be used, enabling the U.S. electric carmaker to weather the crisis better than many others.

General Motors takes it one step further by drawing up plans to develop multi-use chips. With manufacturers like Qualcomm, STM, and Infineon, the automaker will work to develop microcontrollers that will be used instead of separate chips serving different functions. It will combine all the separate functions and remove the need for individual chips, directly influencing the chip shortage for the better. “We are trying to create an ecosystem that is more resilient, more expandable, and always available,” a company spokesperson said.

While strategizing to create innovative solutions is fantastic news for the automotive industry, some automakers are making the best of what they do have. For them, the better strategy is to finish the production of the entire car, apart from the missing part, and assemble it later as per the availability. Then, production will be relatively easy when the product does resurface. Another way around this is to produce cars void of functions that these chips control and sell those. 

Let’s hope these strategies work in favour of the carmakers since the semiconductor shortage doesn’t seem to be resolving anytime soon.