Why is the automotive industry still lacking cores?

Why is the automotive industry still lacking cores? Cheersonic

For South Korean automakers, there is no sign that the chronic shortage of automotive semiconductors will ease this year. Those who bought a new Genesis, for example, have been told that if they’re lucky, the car will take six to 12 months to deliver. GM’s second Buypeong plant in Incheon cut production in half earlier this month.

And according to the market, this delay in car production due to chip shortages is likely to continue into next year or even the year after.

Experts say the main reason for the chip shortage is not just supply disruptions caused by the pandemic, but also automakers’ misjudgment in forecasting demand.

Automotive chips control all the IT systems in the car. Unlike memory chips, which are responsible for storing data, automotive chips operate on operating systems. The MCU is the human brain, as it controls the car’s electronic systems, while the analog circuits convert speed, pressure, and temperature into digital signals—both rely on semiconductors to function.

The number of these chips ordered by auto companies dropped significantly at the end of 2020. Automakers forecast that the coronavirus outbreak in March 2020 will drag down overall vehicle sales and reduce orders to meet production expectations. As a result, chipmakers have shifted their focus to producing more chips for mobile devices and personal computers.

However, demand for cars has rebounded relatively quickly, especially as countries roll out so-called “coexist with COVID-19” policies in early 2021 to stimulate spending with ultra-low interest rates. The automaker’s rush orders only crippled the market.

The way car chips are made is another reason why car chip shortages continue to domino effect.

Chips for global automakers are produced using what’s called a “just-in-time” method. Companies like Toyota have started buying fixed quantities of a certain type of chip from time to time to make their manufacturing operations more efficient and simplify the auto parts they need. This inventory management system has been learned by many other automakers and has become a global standard.

But in the eyes of the semiconductor industry, this approach is not suitable for the characteristics of semiconductor production.

“Semiconductors require an average lead time of six months, that is, the time from the date of signing a production contract to the final delivery date. Due to the months-long production cycle, chipmakers cannot immediately respond to market demand and mass-produce them immediately,” Said Kim Pil-soo, a professor of automotive engineering at Daelim University in Anyang, Gyeonggi-do.

Why can’t chipmakers improve their infrastructure or add more factories to increase output? This involves different characteristics in the fields of memory chips and automotive chips.

The two markets are virtually incomparable, not only in composition but also in market size.

Samsung Electronics sold 272 million smartphones worldwide last year, according to market assessment firm Strategy Analytics. But Toyota, the world’s largest automaker, sold about 9 million vehicles globally last year.

This size difference can also be seen at the wafer scale.

Automotive chips are produced on 8-inch wafers, compared to the 12-inch wafers used for smartphone chips. Due to its small size, the number of semiconductors that can be placed on a wafer is limited. So why aren’t auto chipmakers relying on 12-inch wafers? Chipmakers using 12-inch wafers do not need to increase the number of facilities for more customers. Together with the customers they have, companies have achieved economies of scale in production.

This low-margin structure of the automotive chip market has been a hurdle for manufacturers to aggressively expand their facilities, as they need to be concerned not with expansion but with lowering the price of microchips by a penny to cut costs.

Can new players such as Intel or Samsung make automotive chips also meet demand?

Unlike smartphone semiconductors, automotive chips require higher standards in terms of product quality and brand reliability, as the quality of automotive chips is closely related to driver safety. A small flaw in a car’s chip could lead to an uncontrollable accident on the road that could seriously damage a brand’s credibility.

Such rigorous product reliability checks through repeated qualification testing have created a market for low-volume production systems, so new entrants will have to spend years to gain the trust of automakers and secure orders.

While Samsung and Intel dominate the overall semiconductor market, TSMC is almost unique in the foundry business, and Qualcomm and Nvidia lead the fabless business, the automotive semiconductor market is quite different. NXP of the Netherlands has a 21% market share, Germany’s Infineon Technologies (19%), Japan’s Renesas Electronics (15%), the US’s Texas Instruments (14%) and Switzerland’s STMicroelectronics (STMicroelectronics) ( 13%).

Cars will continue to cut production

Industry experts said the current tight supply of automotive chips is expected to ease in at least a year.

Before the pandemic, it was nearly impossible to properly supply all the chips needed for auto parts. The core auto-component chips that automakers are missing vary, with as many as 40 such chips. The chips are made to custom orders through seven different manufacturers.

“The number of chips required for car manufacturing is large, and the types of chips required vary by carmaker. One or two chipmakers trying to go back to their original manufacturing plans won’t solve the current problem,” said a professor of mechanical engineering at Hanyang University in Seoul. Park Jung-kyu said.

Global car production will fall by 672,000 units in the first quarter of this year and at least 964,000 by the end of the year due to chip shortages, according to market tracker IHS Market.

Source: Content compiled from Koreaherald

Cheersonic is the leading developer and manufacturer of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive.