Automotive Monthly Newsletter and Podcast
This month’s theme: The Chip Dip
Global light vehicle production is estimated to have been up by
15% in the first quarter of 2021 and as we reach the end of the
second quarter, we expect growth of 50% against a weak comparison
in 2020. As the automotive industry recovers from the pandemic it
continues to be challenged by a series of supply chain
constraints.
First quarter saw the emergence of a global semiconductor
shortage due to capacity constraints and the lack of inventory for
microcontrollers, the majority of which are sourced from one
supplier in Taiwan. Next, before the quarter was out a snow/ice
storm hit Texas, which shuttered chemical plants and forced raw
material shortages for plastics, foams, and resins, while also
forcing three semiconductor plants to shut down, further
contributing to the shortage. A fire at a semiconductor
manufacturer in Japan in mid-March further hampered the supply of
semiconductors. Additionally, concerns around the impact of steel
inventory shortages in light of surging demand from multiple
industries have disrupted multiple sectors including automotive.
Lastly, delays at US ports due to a surge in container deliveries
are leaving automakers and suppliers wondering about transit times
for their parts; the week-long Suez Canal blockage is bound to also
have an impact, although it is difficult to determine the specific
aspects.
As original equipment manufacturers (OEMs) and suppliers
continue to evaluate the resiliency of their supply chains and
inventories as well as adapting their schedules to reflect these,
IHS Markit analysts have been keeping abreast of developments.
In the first quarter we started to see major disruption as it
became clear that supply chains were out of sync and semiconductors
were not available to support higher levels of vehicle demand. The
semiconductor supplies had been moving to other industry sectors,
consumer electronics, over time and vehicle demand had come back
strongly after the initial disruption of COVID-19 in the first and
second quarters of 2020. This strong demand was also creating an
imbalance as the semiconductor supply chain was not geared up to
support the level of automotive demand that was emerging. This has
led to an estimated 1.4 million light vehicles not being built
globally.
Moving into the second quarter the levels of disruption
continued to weigh down on automotive supply chains including
semiconductors. The situation from the first quarter already
presented a challenge and then we saw the effects of the storms
that hit Texas, spurring concerns over the ripple effect. Shortly
afterward, the Fukushima earthquake in Japan, along with the fire
at Renesas Naka 3 facility further dealt a blow to the supply
chains. All these additional shocks happened in the first quarter,
but the greatest impact was felt in the second quarter when we
estimate close to 2.3 million units of light vehicle production
will be lost.
It is also important from the IHS Markit point of view to note
that we see additional pressure in the supply chain in second
quarter as we believe that this would be the timeframe when the
consumer electronics industry would be ordering products that would
be shipped later in the year for sale around Black Friday,
Halloween, Chinese Golden Week, and Christmas. This is a pressure
point that we see compounding the situation in the second quarter
but critically should be less influential over the remainder of the
year.
In third quarter we expect continued disruption but not to the
scale seen in the first or second quarter. Ongoing tracking has
already identified stoppages are expected to account for over
250,000 units and we are not even in the third quarter yet.
We expect an improvement in the first or second quarter because
the situation is becoming better understood and great efforts are
being made to enhance visibility within a very complex supply
chain. We see evidence of this in some of the more relaxed
announcements coming from General Motors (GM) starting back
operations earlier than initially planned and Toyota’s ongoing
commitment to its planning. In Toyota’s case we know that they have
been monitoring supply chains for over 10 years since the Fukushima
earthquake/tsunami in 2011, while GM has been focused on improving
its understanding of the situation since January and we may now be
seeing some results. However, there are still mixed signals and it
is too early to sound the all-clear.
Other OEMs are implanting similar efforts and while this can
only provide limited support, we take this alongside restoration of
semiconductor capacity at Renesas in Japan, plus NXP and Infineon
in Texas to ease levels of disruption over what we have seen so far
this year. Note again that we are only expecting capacity to be
restored to prior levels and do not expect a build-back effect to
take place.
For the final quarter we are expecting the supply of
semiconductors to align to a ‘reasonable’ level of automotive
demand. We stress reasonable as automakers and tier-1 suppliers
will not achieve a reasonable level if they communicate exaggerated
or overly ambitious levels of demand for semiconductors. Without
any major capacity gains, one of the best ways to reduce the kind
of disruption we see now would be to align available capacity to
realistic planning volumes.
We are not expecting a significant constraint to emerge from the
consumer electronics sector in the fourth quarter of 2021. This is
partly due to our understanding of the timelines within the supply
chain and partly also because some of the drivers in 2020 are
unlikely to be repeated quickly—the sharp shift to remote
working and the need to be connected, the spikes in demand as the
world recovered from the shock of the first wave of the pandemic,
and the launch of major gaming consoles from Sony and Microsoft,
including the launch of a new iPhone. Based on this, real recovery
efforts would only start in early 2022.
Much of the impact on new vehicle sales remains to be seen at
this stage, as inventory levels remain healthy enough to meet
today’s demand. As time goes on, the availability of high volume,
popular vehicles may be an issue in larger markets.
Semiconductors update
On 15 February, NXP’s, Infineon’s, and Samsung’s fabrications in
and around Austin, TX were forced to shut down owing to a winter
storm that disrupted power and water supplies. Outputs at all
fabrications are back or close to pre-shutdown levels.
The recent fire in the 300 mm cleanroom at Renesas’ Naka
fabrication in Japan impacted a small area of the fabrication but
it damaged water supply, air conditioning, and manufacturing
equipment. In its 1 June update Renesas reported the output was 88%
of the production before the fire and that it is targeting a 100%
by mid-June. Likewise, NXP announced in April that its Austin
fabrications are back to 100% pre-storm levels.
While the shutdowns in Texas and Naka are known issues, there is
a potential issue looming in the near future worth highlighting.
Taiwan is experiencing its worst drought in decades. Making
semiconductors requires large amounts of ultra-pure water. A water
shortage in the region means less available water for all
activities. While TSMC and UMC are able to recycle over 85% of
their water, additional water is required, on the order of tens of
millions of gallons/day. Reservoirs are holding only about 10% of
their capacities. Given that TSMC and Intel are exploring fab
expansions in Arizona, a significant portion of Arizona water come
from the Colorado River and the snowpack in Colorado in 2021 was
slightly below average. Water security is important for all
fabrications in the near and long term.
The other unknown issue is there have been some new COVID-19
outbreaks that have limited workforces at wafer fabrications and
assembly locations. If these are sporadic the impact should be
minimal and short term. However, the rise of new strains especially
in regions with limited vaccines continues to threaten the
availability of semiconductors.
However, the current tight supply chain, along with disruptions
to non-automotive markets impacts the automotive sector. The
automotive suppliers of semiconductor-content impacted by shortages
are expected to improve in the second quarter, and by third quarter
able to meet ongoing demand, with a likely slippage by a quarter,
with fourth quarter now looking like the first opportunity for
supply to keep up with demand. However, IHS Markit estimates it
will be first quarter of 2022 before there will be enough capacity
to keep up with demand and to begin filling missed backlog.
In response to the disruptions of 2021 the semiconductor
suppliers are extending the fixed order window from 12 weeks
previously to a year or more now. Some minor adjustments are
allowed but orders are becoming noncancelable/nonreturnable, which
means even if the demand decreases the customer is responsible for
the value of the entire order. These conditions are being applied
to all semiconductors not just MCUs. The level of confidence in the
actual demand for semiconductors is one of the reasons for these
conditions, if the demand is real some see tight demand continuing
through 2022 until new front-end and back-end capacity is in place.
If the demand is exaggerated conditions could relax sooner once the
demand returns to more normal levels and the systems are
transparent enough for all to rationalize the demand.
Dive Deeper
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Source: http://ihsmarkit.com/research-analysis/fuel-for-thought-the-chip-dip.html
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