As 2020 progressed by way of the COVID19 pandemic, industrial companies of every kind shook off the shock and began to maneuver with objective, very similar to a startled possum recovering from a perceived risk. This was very true for the electronics industry.
As 2021 began off, articles had been masking these prevailing semiconductor shortages and the impact they’re having on OEMs’ skills to ramp manufacturing on every part from gaming consoles to vehicles. The information particular to vehicles has been significantly grim. Pre pandemic, the passenger car market had been properly off its peak manufacturing ranges for a number of years and output was lower even additional because the pandemic took maintain.
However a humorous factor occurred.
Car gross sales held up and even started to extend, and vendor inventories rapidly shrank. So, the passenger car producers equipped and commenced loading orders onto their provide chains for components, a rising portion involving digital parts.
Determine 1. Car gross sales have elevated, affecting vendor inventories and placing strain on automotive producers.
Whereas growing lead occasions and allocations within the semiconductor sector have dominated the automotive information, it’s value noting that many different digital element sectors are additionally underneath stress because of the rebound in car manufacturing. Issues like excessive capacitance ceramic capacitors, energy inductors, and high-temperature, high-power connectors are additionally briefly provide. Even when chips had been plentiful, the automotive, truck, and SUV makers can be in bother because it solely takes one lacking element to close down a manufacturing line.
What Causes This Starvation for Parts?
So how did this occur to an industry that has as a lot shopping for energy because the automotive industry? Properly, it begins with the truth that the digital content material of recent automobiles is snowballing. That is very true for hybrid and absolutely electrical automobiles, the manufacturing of which is forecasted to double to over 12 million per yr within the subsequent couple of years. In combination, forecasts name for as a lot as a 30 to 50% enhance in electronics content material per car over the following couple of years.
Determine 2. The demand for electrical automobiles is about to develop exponentially within the coming years, making electronics parts extra important to the automotive industry.
On prime of that, lots of the digital parts that go into a brand new automotive are designed particularly for automotive purposes. Including further capability doesn’t occur in mere moments, and even months; it takes quarters, typically including as much as greater than a yr, to carry new capability on-line for a lot of digital parts — semiconductors initially. And lots of the 50 to 150 chips used within the common car are made with older fab applied sciences that the semiconductor firms are reluctant to spend more cash on because the newer applied sciences are extra environment friendly and worthwhile.
Digital Part Consumption Goes Past Automotive
This development towards growing digital element consumption isn’t restricted to the transportation industry. Shopper electronics, telecommunications, and computing are additionally industry examples the place unit manufacturing and element consumption are each rising.
Determine three. The expansion of TDDI IC cargo from 2019 to 2021 for smartphones (left) and tablets (proper). Models are in thousands and thousands. Picture courtesy of TrendForce.
For instance, the brand new 5G smartphones which are beginning to mainstream use 50% extra ceramic capacitors than their 4G predecessors, and pocket book laptop manufacturing elevated 22% final yr (per TrendForce) in response to the rising work-from-home motion.
Just about all the digital element producers who service the transportation sector additionally promote into these different sectors and this general rising tide in demand has given them choices on which clients get precedence. This has led to a “second shoe” dropping on the automakers.
With their volumes and fairly lengthy product life cycles (when in comparison with say the cell phone enterprise the place new fashions typically are changed earlier than their second birthday), the automakers are infamous for driving a tough discount with their provide chains. They demand, and get, best-in-class element pricing, just-in-time stock assist, and really favorable phrases that allow them to reschedule with little to no discover, incur low legal responsibility for not residing as much as an settlement, and grant them the power to hit a provider a major monetary penalty within the occasion of a manufacturing stoppage.
In order industry output slowed within the years resulting in COVID19, element producers shifted freed capability to different electronics sectors the place the phrases weren’t as onerous, and the margins had been higher and realized to stay with much less automotive-related volumes working by way of their crops.
Chip Producers Shifted Their Provide
As automakers snapback, they anticipated the identical capability to be there ready for them solely to seek out that it had been absolutely absorbed by firms making home equipment, medical gear, computer systems, et cetera. And due to automotive’s industry-wide apply of just-in-time stock and shopping for straight from the element producers relatively than using the provision chain companies of distributors and contract producers, there was no stock buffer ready within the wings to save lots of the day.
If these industry dynamics aren’t sufficient of a problem, the continued commerce disputes between the U.S. and China have sophisticated issues enormously for price-sensitive U.S. automakers whose provide chains have change into closely depending on Chinese language sources. Additional complicating issues is the rise in annual extreme climate occasions that often snap hyperlinks inside all provide chains, costing firms billions of in misplaced revenue on account of prices related to mending their provide chains, and gross sales which are missed whereas within the restoration course of. This has contributed to the “excellent storm” that has swamped the passenger car provide chain.
The Problem of Worldwide Provide Chains
Firms in lots of industries which have advanced, worldwide provide chains are having to return to grips with the truth that their provide chains should not very illness resistant or weatherproof.
The extra hyperlinks within the chain, the extra of an issue this turns into. A survey performed by Jabil Electronics final yr discovered that the standard automaker has 250 tier-one suppliers and as many as 18,000 suppliers throughout their prolonged provide chains. That’s lots of totally different operations that may be affected by a fireplace, flood, earthquake, political unrest, tariff, and/or infectious illness. When you consider it, it’s a surprise that issues operate in addition to they do.
There are not any fast and simple fixes for these pitfalls and obstacles. So, for now, the auto industry goes to must deal with as a lot as $61 billion in misplaced gross sales, and billions in related misplaced earnings on account of provide chain disruptions, this time lead by, however not restricted to, semiconductors.
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