Why Carmakers are appealing to Taiwan for TSMC chips
The automotive market is seeing a surge in car demands in the post-covid era. The fast rebound is leading to a shortage of chips. Authorities in Germany, the US and the EU have successively appealed to the Taiwanese government, home to TSMC to help solve this issue.
Peter Altmaier, the German Economy Minister had written to Taiwanese Economy Minister Wang Mei-Hua (王美花) and Vice Premier Shen Jong-chin (沈榮津) to stress the problem in hope of raising chip supply to the German automotive industry which is vital to the country and a global economy revitalization. According to the German Ministry of Economy, TSMC is the main chip supplier to the German car industry.
And they are not the only one. According to news sources, the US car industry has also reached out to Hsiao Bi-Khim (蕭美琴), Taiwanese representative to the US, hoping the automotive chips could be prioritized to supply for major US car brands – Ford, General Motors Co. and Fiat Chrysler Automobiles. Japanese Mitsubishi Motors sought out to Taiwanese Presidential Senior Advisor Lin Hsin-i (林信義), who was previously an executive in the car industry, to express the eagerness to directly purchase from TSMC automotive chips.
Why is there a shortage all of a sudden?
Last year in face of the pandemic, the automotive market plunged and chip foundries were busy serving the high demands for electronic gadgets. When the automotive market regained liveliness in the fourth quarter, the orders were placed at the bottom of the pile, causing a shortage.
According to Bloomberg, carmakers dealing with automotive chips are done indirectly through automotive parts suppliers, such as Bosch Auto Parts, which then reaches out to auto-chip designers including German Infineon, Netherlands NXP, Japanese Renesas Electronics and US Texas Instruments, but with the lack of production capacity, a large part of the production is outsourced to foundries, such as TSMC.
Another problem is these downstream OEMs often prefer electronic gadgets chips over automotive chip making since they come in larger volumes and steadily contributes to its profit. Carmakers often complain they prioritize the electronic gadgets over automobiles.
As car design gets increasingly complex and premium, the need for automotive chips also increases. It is pointed out a premium car may need over 3,000 chips to operate, according to Bloomberg.
President of IC Foundry Vanguard, Leuh Fan (方略) predicted the automotive sales this year will reach 77 million compared to 72 million last year. The average semiconductor value within each car will increase by 15% and automotive chip markets will grow by 24%. The demand will continue to be strong.
China Association of Automobile Manufacturers Deputy Secretary-General Li Shaohua (李邵華), predicted last year that a shortage will happen in the first quarter of 2021, affected by the second wave of the pandemic, where several factories in Europe and Southeast Asia had shut doors and will also cause damage to the Chinese market in supplying for car parts.
How is it going?
TSMC had said to invest US$28 billion into the chip production. A move that may help ease the current situation.
Chief Executive Officer of TSMC, C.C. Wei (魏哲家) said demands from automakers shrunk in the third quarter last year and saw a rebound in the fourth. The ecosystem of keeping a low inventory and a “lean” production line in the automotive industry doesn’t help the situation, whereas electronic industries are inclined to building up inventory as a preparation.
The automobile industry is key to the German economy, the strain at automotive chip production is therefore of vital importance for recovery after the pandemic, causing a rare action for governments to initiate such actions, said Liu Pei-Chen (劉佩真), a researcher at TIER (Taiwan Institute of Economic Research) reported by CNA news.
This also shows the importance of TSMC in advanced chip production. Although there are many automotive-chips foundries, TSMC is competitive in their large and complete production capacity and low defection rate. Although they are accelerating investment and expanding factories, according to schedule, the automotive-chips will be produced only earliest from the second quarter.
The Taiwanese Government have pledged to talk with TSMC into the issue.
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