Less incentive to produce semiconductors for vehicles with low margins
Even after expansion, production takes 6 months to 1 year
Hyundai Motor Company and Kia secure inventory with lessons from Corona 19
There is no immediate production disruption, but prolonged impact is inevitable
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As the supply shortage of automotive semiconductors intensifies, major automotive semiconductor companies are raising prices. It is forecasted that the supply-demand imbalance of automotive semiconductors is difficult to resolve for at least six months. As semiconductor supply shortages and price hikes overlapped, global automakers took an emergency.
According to the industry on the 25th, NXP, the second largest company in the global automotive semiconductor market, and STMicroelectronics, the fourth largest in Switzerland, announced plans to increase the price of automotive semiconductors by 10-20% to automakers. Japan’s Renesas, the third place, has also requested an increase in product prices for customers. German Infineon, the number one player, is also likely to make a decision to raise it sooner or later. These companies are known to have increased product prices as the cost to order semiconductor production for vehicles from foundry (consignment production of semiconductors) increased.
As automotive semiconductors are showing shortage, global automakers are being driven into the worst situation of discontinuing production. Currently, a number of automakers such as Ford of the US, Volkswagen of Germany, and Toyota of Japan are disrupting production due to an imbalance in supply and demand for semiconductors.
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The rapid price increase of automotive semiconductors is interpreted as a phenomenon caused by Corona 19. Semiconductor production is generally prepared by placing orders at least 3-4 months in advance. However, global automakers, which experienced a’consumption cliff’ once in the spring of last year, have conservatively made plans to secure semiconductor inventory in consideration of the shrinking consumer sentiment due to Corona 19.
However, overturning expectations, orders for new cars poured in from October to December of last year in China, leading to a shortage of semiconductor stocks. Automakers belatedly started placing orders for semiconductors, but semiconductor manufacturers had already concentrated their production capacity with booming information technology (IT) products.
The strong Chinese corporate sanctions imposed by the US government last year are also considered to be a factor that tangled the automotive semiconductor supply chain. Former US President Donald Trump put SMIC, China’s largest foundry (consigned semiconductor production) company, on the list of restricted transactions in December last year. Automakers and semiconductor design firms (fabless), who were unable to place orders for SMIC, which was the main production axis of automotive semiconductors, are in a hurry to find new customers. TSMC, the world’s largest foundry company, which is known to have absorbed the most demand from SMIC, is putting all its production capacity into server and mobile semiconductors, which have increased rapidly since the first half of last year. This is the reason why it is difficult to squeeze through the tightly crafted annual production plan of the foundry even if automakers urgently needing to secure semiconductors for vehicles mobilize their own government to request production.
The fact that automotive semiconductors have a relatively smaller margin than IT semiconductors such as smartphones, computers, and servers is another factor that pushed production to the rear. An official from a semiconductor company said, “The automotive semiconductor companies such as German Infineon, NXP in the Netherlands, and Renesas in Japan have no capacity to respond to the surge in demand.” It is,” he said.
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Global automakers such as Ford of the US, Toyota and Nissan of Japan, and Volkswagen of Germany are closing their factories or cutting production because they cannot obtain semiconductors for vehicles. On the other hand, Korea’s leading automakers, Hyundai Motors and Kia, have a relatively better situation. Despite the Corona 19 crisis, Hyundai Motor and Kia, which recorded a decrease in production volume much less than the overall market decline, were able to maintain the supply and demand flow unlike other companies that had stopped ordering semiconductors for vehicles.
The change in strategy toward securing plenty of stock from the lessons of Corona 19 was also effective. Hyundai Motor Company and Kia chose to change from the’Just in Time’ (JIT) method, which reduces inventory as much as possible and reduces costs, to increase stability even if it costs a little more.
However, if the supply shortage situation prolongs, Hyundai Motor and Kia are also expected to be affected. This is because the supply-demand imbalance of automotive semiconductors is caused by structural factors, and the demand for semiconductors inevitably increases as automobiles are increasingly becoming’IT devices’.
If the supply of semiconductors for vehicles continues, there is a concern that semiconductor producers raise semiconductor prices, and automakers reflect them in product prices, and a series of price increases. Song Seon-jae, a researcher at Hana Financial Investment, said, “If the semiconductor price rises by 10% as automakers compete to purchase semiconductors, the production cost of automobiles will increase by about 0.18%.” “A level that can be done” analyzed. As of 2019, Hyundai Motor Company generated 3,605.5 billion won and Kia 2,7 trillion won. Even 1% would incur a loss of 50 billion won.
An official of the Hyundai Motor Group said, “We are further strengthening the management system through diversification of supply chains while pursuing securing maximum semiconductor safety stocks.”
/ Reporter Park Hanshin [email protected]
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