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Waning demand for consumer electronics may be causing cancelled orders and unsold stockpiles of components at companies like Advanced Micro Devices Inc. (AMD), NVIDIA, and Taiwan Semiconductor Manufacturing Co (TSMC), but the surplus hasn’t caught up to the automotive manufacturing industry yet.
In fact, the current chip shortage continues to plague automakers, leading to what McKinsey & Co., refers to as a “supply-demand mismatch” for automotive semiconductors. That’s because as vehicle technology becomes more sophisticated, those vehicles need greater amounts of semiconductors.
“Some OEMs have been forced to shut down or slow production because they could not obtain sufficient quantities of semiconductors,” says McKinsey, whose analysis reveals that overall revenues for automotive chips could rise $147 billion by 2030—up from just $41 billion in 2019.
It credits three core areas for driving about 88% of that increase: autonomous driving, connectivity, and electrification. The firm also says that annual demand for 12-in.-equivalent automotive wafers could increase to 33 million by 2030, compared to just 11 million in 2019.
Out of Balance
According to Silicon, worldwide chip sales recently declined for the first time since early-2020 amid shrinking demand for PCs, smartphones, and consumer electronics. It says global chip sales contracted in September for the first time during that period and that industry figures indicated “the worldwide chip shortage is quickly turning into a glut.”
Silicon reports that global 5G smartphone shipments are projected to shrink by as much as 150 million units in 2022, with demand for 5G chips to fall by an estimated 100 million to 120 million units. Meanwhile, market analyst Gartner estimated that worldwide PC shipments totaled 72 million units in the second quarter of 2022, down nearly 13% year on year—the biggest decline in nine years.
“Demand for chips in smartphones and personal computers accounts for more than half of the worldwide chip foundry capacity,” Silicon reports. “The shifting situation has not improved constraints in the automobile industry, where chips remain in short supply. Automobile chips account for less than 10% of the total chip market.”
Silicon says chipmakers have been building new capacity amid the shortages since the second half of 2020. That capacity will begin coming online toward the end of 2022. Thus, the chip industry may see a sustained period of overcapacity, or “a periodic occurrence in the semiconductor market, which tends to experience sharp boom and bust cycles.”
Light at the End of the Tunnel?
In “Chip shortages still plague carmakers despite weaker semiconductor demand,” The Register details how automobile manufacturers continue to face chip shortages and supply issues to the extent that some are halting or cutting production: “Despite predictions from some industry watchers that the end of chip shortages is in sight and lead times are falling, shortage of key components is still affecting some car makers.”
For example, Volvo recently became the latest automaker to temporarily close a factory due to the persistent chip shortage. It shut down the location for seven days. Toyota also announced that it is continuing to be hit by chip shortages at its car plants across Japan—issues that The Register says have dogged the company for much of 2022. It resulted in Toyota suspending manufacturing in May and June at many of its production lines.
Richard Gordon, Gartner VP for Semiconductors & Electronics, told The Register that the chip supply situation continues to improve, but said the problem probably won’t be fully resolved until some point in 2023.
"It only takes a supply glitch affecting one chip type (e.g., power management) to cause a disruption to electronics production, and there are issues specific to the automotive space that are taking longer to re-balance," Gordon told The Register. "These include issues with the shift to EV on the demand side and a need for legacy capacity on the supply side."
