It is known that the automotive industry is suffering from supply problems for semiconductor chips. The research arm of the Allianz insurance group now has quantified the damage in a study: Some 18 million vehicles could not be built worldwide because the semiconductors intended for them were not available. By the end of this year, the damage from this will add up to €100 billion.
Bracing for tough times at the beginning of the pandemic, carmakers and automotive suppliers responded with deep cuts in semiconductor inventories and orders, the study recapitulates. As demand for cars recovered faster than expected in the second half of 2020, the industry discovered that chip manufacturers had reallocated production capacities to end-markets with booming demand, such as computers and data centers, leaving little capacity for the automotive sector. Nearly two years on from the first signals of a semiconductor shortage, car production remains far below its 2019 level, with a cumulated production shortfall of over 18mn vehicles globally. The situation has been comparatively worse in Europe where vehicle production fell to an unprecedented low of 13mn vehicles in 2021 – a deeper decline than in North America or China (which, by the way came through the crisis relatively unscathed so far).
After signs of improvement in late 2021 and Q1 2022, the production recovery was again held back by additional supply-chain tensions caused by lockdowns in the wider Shanghai region and Russia’s invasion of Ukraine.
While the underlying reasons for lower car production globally are common to all regions, the Allianz Research authors observe significant dispersion in regional performance. Comparing resilience in car registrations with mature semiconductor manufacturing capacities at a regional level, the study states a positive and strong correlation, underlining how critical local chip production is to automotive-production resilience. “Europe’s vulnerability is even more frustrating because the production of most automotive chips relies on well-established manufacturing technologies”, the experts write. Unlike the computing or memory chips found in smartphones and computers that use the most cutting-edge manufacturing technologies found only in Taiwan and South Korea, automotive chips rely on mature technologies introduced in the 1990s and 2000s.
Comparing the production in the current and the past year to that of 2019 and taking into account consumer’s spending strength, the market researchers reckoned a comparable number of cars built – if the supply had allowed. According to Allianz Research, more than €50bn was lost in 2021 already, the equivalent of 0.4% of the region’s GDP. Assuming European production recedes by another -1% in 2022, another €47bn could be lost. Germany has faced the largest hit (€47.5bn in value added lost over 2021 and 2022) because its automotive sector represents a larger share of value added overall. On the bright side, historically low inventory levels at retailers suggest that there could be a large upside potential if production resumes in 2023.
In line with other studies dealing with the topic, the study names three main factors for the rising semiconductor content of the cars: Connectivity, safety and electrification. With these three drivers, the value of semiconductor content per car has more than doubled to over $600 globally over the past 10 years. Given the European mix (safer, more connected, greener than the average car), the European value is most likely higher.
Against this backdrop and since semiconductor autonomy remains to be far out of reach for Europe, the Allianz experts suggest that European support should focus on immediate and reasonable targets. There is little incentive to attract super advanced foundries, they say. However, natural and economically viable incentives are needed to help grow the manufacturing footprint for industrial and automotive grade semiconductors. Europe is home to three of the world’s largest auto/industrial semi companies, which have a mix of outsourced (in Asia) and in-house, often European production. Policymakers must tip the scale in the right direction for local investment to be more of value than outsourcing in Asia. The Allianz expert’s bottom line: Existing plans for expanding semiconductor production in Europe will not help solve the continent’s issue but the start of joint-ventures is a step in the right direction.
Remark from eeNews Europe’s perspective: Acccording to latest reports however, the global semiconductor industry is bracing for a stark downturn. Which means that the chip demand from the industrial and consumer side is expected to dip. As demand from the auto industry remains high across the board, there could be a silver lining on the horizon for this sector.