Strategies to Steer through the Semiconductor Crisis for Automotive Industry

Chip demand is set to rise 17% per year from 2020 to 2022, while supply will grow only 6% per year. The global semiconductor shortage is expected to last beyond 2022 for the automotive industry and many other sectors and will continue for several years.

Some of the key findings in Roland Berger’s recent study “Steering through the semiconductor crisis – A sustained structural disruption requires strategic responses by the automotive industry” are the biggest shortages are seen in older generation chips, the legacy semiconductors on which the automotive industry is reliant; The automotive industry’s current design philosophy still relies on older chip generations, making it harder hit than other industries by the shortage; Semiconductor makers, however, have mainly focused their manufacturing capacity on newer, more advanced generations, which indicates the shortage issues will continue.

While there is a range of mitigating actions to help automakers address shortages and shape their future supply chain management approach to semiconductors, the study however, particularly identified two strategic responses critical to navigate the challenges i.e. secure capacity within direct contracts between OEMs, suppliers, and semiconductor companies, and speed up the transition to centralized electrical/electronic architecture (E/E architectures) and move to advanced and leading-edge nodes.

“One immediate mitigating action would be to secure direct, long-term supply contracts with semiconductor companies that include reciprocal capacity commitments and purchase obligations over several years,” says Timothy Wong, Principal at Roland Berger and Head of Automotive Practice in Southeast Asia.

Current distributed automotive architectures rely on legacy technology, often containing more than a hundred microcontrollers (MCUs), each with limited computing power. Accounting for about 40% of market demand, the automotive industry is one of the primary users of legacy MCUs, which are manufactured in legacy and mature nodes. New manufacturing capacity is not going to resolve the massive supply shortage in the automotive industry because the investment is focused mainly on the latest generation of leading-edge nodes.

Hence, there is a need to expedite transitioning to new electronic vehicle architectures, thereby moving to advanced and leading-edge nodes, which are less affected by the supply crunch.  

“In the long term, OEMs and suppliers in SEA must adapt their design philosophies to keep pace with the dynamic capacity changes in the semiconductor industry. Addressing the crisis requires strategic action now,” says Wong.

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