EIt wasn't long ago that car companies around the world had to cut back on production because of a lack of semiconductors. Entire production lines in the factories came to a standstill and millions of vehicles could not be built. NXP Semiconductors, one of the most important manufacturers of chips for the automotive industry, is now warning clearly that the risk of disruption has not been averted. We are currently seeing that “the economic environment is putting some companies under a lot of pressure,” says NXP’s Chief Technology Officer and Head of Germany, Lars Reger, with a view to large customers in the industry.
Due to “commercial constraints,” some major customers reduced their inventories. This frees up resources, but at the same time, the concern is, it increases vulnerability to shocks. Because if car manufacturers and other industrial groups do not have enough chips in stock, they are dependent on short-term deliveries from NXP, Infineon, STMicroelectronics and Co, who may not be able to react quickly enough to fluctuations in demand.
However, Reger is confident that the system of buyers and producers is more resilient today than it was a few years ago. The automotive industry association, the VDA, is now planning much more precisely in advance what the industry's needs are, he said on Thursday evening at the Hamburg Business Journalists' Club. This is going well, even if it is “anything but trivial”.
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For a long time, the focus was on supply contracts with large automotive suppliers such as Bosch, Denso and Continental. But now the business is more like a love triangle. This has been hotly debated in the industry for months: car manufacturers such as Volkswagen, Mercedes, GM and Toyota now want to work directly with chip suppliers, also because they want to have direct access to important electronic components after the supply crisis.
There is a specific requirement to produce new generations of chips on different continents in order to cushion supply chain problems and political crises, says Reger. It is obvious that this means higher prices for customers. Anyone who dictates “where the stuff comes from” also has to bear the higher costs.
In 2021 alone, S&P Global Mobility estimates that the global auto industry lost around 9.5 million cars in production due to a lack of chips, an economic debacle. For 2022, the consultants estimate the impact will be 3.5 million vehicles. It was not until 2023 that the situation largely returned to normal. Sales and purchasing managers had underestimated how strongly the car market would pick up again after the Corona slump. Orders to the chip industry were canceled, which then freed up capacity for manufacturers of smartphones, laptops and televisions.
Europe more resilient, but not self-sufficient
Wars and political crises have also highlighted dependencies, for example on Taiwan, which accounts for 60 percent of global chip production. New chip factories are now being built in America and Europe, for example in Dresden, where the world's largest contract manufacturer, the Taiwanese TSMC, wants to build a new location with 5 billion euros in funding. In addition to NXP and Infineon, the automotive supplier Bosch is also involved in the project.
Reger, who has worked for companies such as Siemens, Infineon and Continental, warns against false expectations. Europe will become more “resilient”, but not self-sufficient. For complete independence, 700 to 900 billion euros in investments are needed, an illusion, quite apart from the fact that “we don't have the know-how and we can't get the talent together.” International cooperation will continue to be essential for chip production in the future.
AI increases the requirements
NXP emerged from the chip division of the Dutch company Royal Philips in 2006. The company employs more than 28,000 people, is largely controlled from Hamburg and is listed on the American technology exchange Nasdaq. NXP has always had close ties to the automotive industry – and is now further deepening its contacts. Autonomous driving and artificial intelligence are increasing the requirements so much that in-house teams have long been approaching customers in large numbers to help develop the technology in the early phases.
Working groups in which 30 to 40 of our own specialists sit together with the car manufacturers' chief developers are nothing unusual, says Reger. One example is the cooperation with the Vietnamese start-up Vinfast, which has brought four product lines of electric cars onto the market in just three years and relies heavily on processors, semiconductors and sensors from NXP.
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