How China became ground zero for the auto chip shortage
TAIPEI/SHANGHAI/SINGAPORE听–听From his small office in Singapore, Kelvin Pang is ready to wager a $23 million payday that the worst of the听肠丑颈辫听蝉丑辞谤迟补驳别听is not over for听补耻迟辞makers 鈥 at least in听颁丑颈苍补.
Pang has bought 62,000 microcontrollers,听肠丑颈辫s that help control a range of functions from car engines and transmissions to electric vehicle power systems and charging, which cost the original buyer $23.80 each in Germany.
He’s now looking to sell them to听补耻迟辞聽suppliers in the Chinese tech hub of Shenzhen for $375 apiece. He says he has turned down offers for $100 each, or $6.2 million for the whole bundle, which is small enough to fit in the back seat of a car and is packed for now in a warehouse in Hong Kong.
“The听补耻迟辞makers have to eat,” Pang told Reuters. “We can afford to wait.”
The 58-year-old, who declined to say what he himself had paid for the microcontrollers (MCUs), makes a living trading excess electronics inventory that would otherwise be scrapped, connecting buyers in听颁丑颈苍补聽with sellers abroad.
The global听肠丑颈辫听蝉丑辞谤迟补驳别听over the past two years – caused by pandemic supply chaos combined with booming demand – has transformed what had been a high-volume, low-margin trade into one with the potential for wealth-spinning deals, he says.
Automotive听肠丑颈辫听order times remain long around the world, but brokers like Pang and thousands like him are focusing on听颁丑颈苍补, which has become听驳谤辞耻苍诲听锄别谤辞听for a crunch that the rest of the industry is gradually moving beyond.
Globally, new orders are backed up by an average of about a year, according to a Reuters survey of 100听补耻迟辞motive听肠丑颈辫s produced by the five leading manufacturers.
To counter the supply squeeze, global听补耻迟辞makers like General Motors Co聽GM.N, Ford Motor Co聽F.N聽and Nissan Motor Co聽7201.T聽have moved to secure better access through a playbook that has included negotiating directly with听肠丑颈辫makers, paying more per part and accepting more inventory.
For听颁丑颈苍补聽though, the outlook is bleaker, according to interviews with more than 20 people involved in the trade from听补耻迟辞makers, suppliers and brokers to experts at听颁丑颈苍补‘s government-affiliated听补耻迟辞聽research institute CATARC.
Despite being the world’s largest producer of cars, and leader in electric vehicles (EVs),听颁丑颈苍补聽relies almost entirely on听肠丑颈辫s imported from Europe, the United States and Taiwan. Supply strains have been compounded by a听锄别谤辞-COVID lockdown in听补耻迟辞聽hub Shanghai that ended last month.
As a result, the聽蝉丑辞谤迟补驳别听is more acute than elsewhere and threatens to curb the nation’s EV momentum, according to CATARC, the听颁丑颈苍补聽Automotive Technology and Research Center. A fledgling domestic听肠丑颈辫making industry is unlikely to be in a position to cope with demand within the next two to three years, it says.
Pang, for his part, sees听颁丑颈苍补‘s聽蝉丑辞谤迟补驳别听continuing through 2023 and deems it dangerous to hold inventory after that. The one risk to that view, he says: a sharper economic slowdown that could depress demand earlier.
FORECASTS ‘HARDLY POSSIBLE’
Computer听肠丑颈辫s, or semiconductors, are used in the thousands in every conventional and electric vehicle. They help control everything from deploying airbags and听补耻迟辞mating emergency braking to entertainment systems and navigation.
The Reuters survey conducted in June took a sample of听肠丑颈辫s, produced by Infineon, Texas Instruments, NXP, STMicroelectronics and Renesas, which perform a diverse range of functions in cars.
New orders via distributors are on hold for an average lead time of 49 weeks 鈥 deep into 2023, according to the analysis, which provides a snapshot of the global聽蝉丑辞谤迟补驳别听though not a regional breakdown. Lead times range from 6 to 198 weeks, with an average of 52 weeks.
German听肠丑颈辫maker Infineon聽IFXGn.DE聽told Reuters it is “rigorously investing and expanding manufacturing capacities worldwide” but said听蝉丑辞谤迟补驳别s may last until 2023 for听肠丑颈辫s outsourced to foundries.
“Since the geopolitical and macroeconomic situation has deteriorated in recent months, reliable assessments regarding the end of the present听蝉丑辞谤迟补驳别s are hardly possible right now,” Infineon said in a statement.
Taiwan听肠丑颈辫maker United Microelectronics Corp聽2303.TW聽told Reuters it has been able to reallocate some capacity to听补耻迟辞聽chips due to weaker demand in other segments. “On the whole, it is still challenging for us to meet the aggregate demand from customers,” the company said.
TrendForce analyst Galen Tseng told Reuters that if听补耻迟辞聽suppliers needed 100 PMIC听肠丑颈辫s – which regulate voltage from the battery to more than 100 applications in an average car – they were currently only getting around 80.
URGENTLY SEEKING听颁贬滨笔S
The tight supply conditions in听颁丑颈苍补聽contrast with the improved supply outlook for global听补耻迟辞makers. Volkswagen, for example, said in late June it expected听肠丑颈辫听shortages to ease in the second half of the year.聽
The chairman of Chinese EV maker Nio, William Li, said last month it was hard to predict which听肠丑颈辫s would be in short supply. Nio regularly updates its “risky听肠丑颈辫听list” to avoid听蝉丑辞谤迟补驳别s of any of the more than 1,000听肠丑颈辫s needed to run production.
In late May, Chinese EV maker Xpeng Motors聽9868.HK聽pleaded for听肠丑颈辫s with an online video featuring a Pokemon toy that had also sold out in听颁丑颈苍补. The bobbing duck-like character waves two signs: “urgently seeking” and “chips.”
“As the car supply chain gradually recovers, this video captures our supply-chain team’s current condition,” Xpeng CEO He Xiaopeng posted on Weibo, saying his company was struggling to secure “cheap听肠丑颈辫s” needed to build cars.
ALL ROADS LEAD TO SHENZHEN
The scramble for workarounds has led听补耻迟辞makers and suppliers to听颁丑颈苍补‘s main听肠丑颈辫听trading hub of Shenzhen and the “gray market”, brokered supplies legally sold but not authorized by the original manufacturer, according to two people familiar with the trade at a Chinese EV maker and an听补耻迟辞聽supplier.
The gray market carries risks because听肠丑颈辫s are sometimes recycled, improperly labeled, or stored in conditions that leave them damaged.
“Brokers are very dangerous,” said Masatsune Yamaji, research director at Gartner, adding that their prices were 10 to 20 times higher. “But in the current situation, many听肠丑颈辫听buyers need to depend on the brokers because the authorized supply chain cannot support the customers, especially the small customers in听补耻迟辞motive or industrial electronics.”
Pang said many Shenzhen brokers were newcomers drawn by the spike in prices but unfamiliar with the technology they were buying and selling. “They only know the part number. I ask them: Do you know what this does in the car? They have no idea.”
While the volume held by brokers is hard to quantify, analysts say it is far from enough to meet demand.
“It’s not like all the听肠丑颈辫s are somewhere hidden and you just need to bring them to the market,” said Ondrej Burkacky, senior partner at McKinsey.
When supply normalizes, there may be an asset bubble in the inventories of unsold听肠丑颈辫s sitting in Shenzhen, analysts and brokers cautioned.
“We can’t hold on for too long, but the听补耻迟辞makers can’t hold on either,” Pang said.
CHINESE SELF-SUFFICIENCY
China, where advanced听肠丑颈辫听design and manufacturing still lag overseas rivals, is investing to decrease its reliance on foreign听肠丑颈辫s. But that will not be easy, especially given the stringent requirements for听补耻迟辞-grade听肠丑颈辫s.
MCUs make up about 30% of the total听肠丑颈辫听costs in a car, but they are also the hardest category for听颁丑颈苍补聽to achieve self-sufficiency in, said聽Li Xudong, senior manager at CATARC, adding that domestic players had only entered the lower end of the market with听肠丑颈辫s used in air conditioning and seating controls.
“I don’t think the problem can be solved in two to three years,” CATARC chief engineer Huang Yonghe said in May. “We are relying on other countries, with 95% of the wafers imported.”
Chinese EV maker BYD, which has started to design and manufacture IGBT transistor听肠丑颈辫s, is emerging as a domestic alternative,聽CATARC’s Li said.
“For a long time,听颁丑颈苍补聽has seen its inability to be totally independent on听肠丑颈辫听production as a major security weakness,” said Victor Shih, professor of political science at the University of California, San Diego.
With time,听颁丑颈苍补聽could build a strong domestic industry as it did when it identified battery production as a national priority, Shih added.
“It led to a lot of waste, a lot of failures, but then it also led to two or three giants that now dominate the global market.” – Reuters
