The car chip crisis: How do we deal with the semiconductor shortage?
New PlayStation or car? As things stand, you can have one – but not both.
A decade ago, the world’s most advanced car had 100 microprocessors and more computing power than an Airbus A380. In the automotive world, the Mercedes S-Class first-class sedan is regarded as the pinnacle of technological sophistication – in any era – and the 5th-generation model had more lines of code than an equivalent widebody airliner.
Today, the latest Mercedes-Benz’s S-Class has 30 million lines of code. That is seventeen times more than an F-22 Raptor fighter jet.
Virtually all vehicles have been digitised over the past few years… and at a rapid rate. Some of this has been mandated by increasingly strict crash-safety regulations that require more driver-assistance systems. Our addiction to digital connectivity has driven the balance of this increased digitisation and in-car infotainment has trended to a level of capability that was quite unimaginable in the mid-2000s.
Even an S-Class from 2009 requires multiple ‘chips to keep its systems and screens in operation.
But all of this has relied on the humble microprocessor… That tiny bit of electronic engineering and advanced chemistry has powered the digital revolution. And the world doesn’t have enough of them.
With most new car models increasingly reliant on greater microprocessing integration, any disruption to the supply of those magic little ‘chips could trigger disaster. And it has.
During last year’s peak lockdown, the automotive industry entered a period of unprecedented production stoppages. Uncertainty suffocated forward planning and most car companies made a critical mistake: they overestimated the leverage they had on microchip suppliers.
A hundred years of legacy means nothing in the microchip world
For decades, car companies got what they wanted when they needed it.
With enormous purchasing budgets and the ability to exert great influence on their traditional suppliers, car companies don’t understand being second in line – for anything. But in the realm of microprocessors, companies such as Ford and Volkswagen are, well, unimportant, because the entire automotive demand for microprocessors accounts for as little as 10% of global production.
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For those Asian suppliers that keep most of our digital world successfully networked and functional, their most important relationships are with tech companies. Apple and Samsung are customers of preference for semiconductor suppliers, not Ford and Volkswagen.
Automotive manufacturers are not the big players in the chip market; the mobile phone operators get priority.
Remote learning and -working triggered a surge of device upgrades, which accounted for all excess microchip manufacturing capacity. And that has left the car companies very exposed.
You might be wondering how companies with powerful risk analysis software and scenario-planning divisions got it so wrong vis-à-vis the microprocessor supply. The answer is quite simple: money.
Automotive manufacturing is extraordinarily high-risk, with most companies trying to hold as few on-site component supplies as possible. Storing, sorting, and paying for a bulk of components that you’ll only use in a few weeks’ time is very expensive.
With supply agreements stable, the theory of lean manufacturing worked well for everyone. But when the world virtually stopped turning last year, car companies rapidly cancelled their supplier contracts, with the assumption they could easily access an escalation of supply when required. They were wrong. Dead wrong.
Microchips are not easy to make
Semiconductor manufacturing requires precision and cannot be rushed.
Car companies might have idled for a few weeks last year, but the semiconductor industry kept supplying, as personal technology consumers reconfigured their lives to remote learning and -working.
As the car industry rebounded, there was an expectation that microprocessors would be available. They weren’t… and still aren’t.
The customer expectation of fully integrated smartphone functionality, over-the-air updates, Level 3 driver-assistance autonomy and “intuitive cabin mood-lighting” places a heavy burden on a vehicle’s electronic architecture. Without the processors available to operate these features, car companies are forced to idle production for a second consecutive year.
International travel remains limited and some of that spend is being allocated to vehicle upgrades. As new vehicle demand restores, car companies are learning a painful lesson about being too tech-dependent.
Redundancy supply is possible when you need tyres, wheels and metal or plastic parts – because they are not that complicated to manufacture. Many companies specialise in producing these products for the automotive industry.
Semiconductor modules, by contrast, are not easy to make. They require exceptional precision and an unrushed production process. The global distribution of companies that can make the quality of semiconductors required in modern cars is very limited – and they aren’t aligned or dependent on the car industry.
Unlike seats or stamped body panels, ‘chips are challenging to make; complex chemistry meets precision engineering and the tolerances are minuscule.
Even Toyota is suffering
Although Toyota was initially surviving on its supply, it is now also struggling for chip supply.
BMW. Ford. General Motors. VW. Most of the world’s most established car companies are taking huge losses due to the semiconductor shortage. But one name was notably absent, until recently: Toyota.
Japan’s largest car company – and long considered to be the world’s most stable car manufacturer appeared well at ease throughout the crisis. How? Tsunami logic.
Of all the car companies, Toyota should have been struggling the most. It produces huge volumes and is the most intense practitioner of that “just in time” manufacturing system. As its rivals were announcing or attempting to recover from production shutdowns, Toyotas continued to stream out of its factories and roll onto ships for global customer deliveries.
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After the 2011 Tsunami impacted Japanese society and industry, Toyota suffered an acute microchip crisis. It decided to learn lessons and initiated a reassessment of its most difficult to source components. The result was that Toyota seemed least affected by the microchip shortage, despite producing many vehicles that are no less technologically involved than those of its rivals.
But now, even Toyota has exhausted its microchip supply chain and announced a 40% reduction in production for September 2021.
The grim reality is that all car companies will see reduced production, customer deliveries and overall sales due to the smallest possible constituent bits – those microchips – being unavailable.
Could we deal with less tech?
More screens and connectivity requires more chips.
The car industry finds itself in an impossible space. Crash safety, driver-assistance systems and smartphone integration require a saturation of digital technology – all driven by interlinked microprocessors.
You could argue that average South African entry-level cars (most of which are produced in India) have a lower burden of microchip risk. But that doesn’t account for even a fraction of the global market – or those luxury vehicles that generate the greatest profits for the various automotive marques.
As we desire more cabin screens and digital features, automotive microchip use will only escalate. Brilliant software coding can help with simplification, but other than Tesla, the automotive industry has a poor record of solving complex coding issues. Don’t expect better code to reduce semiconductor numbers in your car soon – unless it is a Tesla.
Is there an argument for user-interface simplification? Do you need every single feature and app on your Smartphone to sync with your vehicle? The same logic could be applied to cars in the future, where product planners will analyse how many comfort and convenience features are not being used and could, therefore, be deleted.
Vehicles will always have to retain core safety and driver assistance features, but perhaps your car’s cabin would be no poorer for the omission of infinitely adjustable LED cabin mood lighting (to name but one example). It would make your car less complex to produce in terms of microprocessor tech. Then again, you could go buy a Nissan NP300.
