Car semiconductor shortage is easing, says leading supplier

The semiconductor shortage that has affected the motor industry for nearly two years may finally be turning the corner, says in-vehicle connectivity company VNC Automotive. In fact, it predicts that a lack of chips critical for hi-tech features in cars could suddenly become an oversupply due to a predicted global recession.

“It’s ironic that the very situation that triggered the shortage for much of the automotive industry should be driving the recovery, now that it has become reversed due to the prospect of recession,” says Tom Blackie, CEO of VNC Automotive.

VNC Automotive’s car connectivity software and hardware is used in more than 35-million vehicles across 20 of the world’s largest automotive brands. It says disruptions in the supply chain caused by a series of disasters at critical production plants were compounded by a huge increase in demand for electronic devices as the pandemic took hold and workingfromhome became the default for many.

However, with a global recession on the horizon and a cost-of-living crisis beginning to bite, consumers have been quick to rein in their spending. Instead of upgrading to the latest smartphone or ordering a new laptop on credit, buyers are choosing to hang on to their existing devices for longer.

“This fall in demand for consumer goods has freed up production capacity throughout the supply chain, from chip fabs through to logistics, and the automotive industry has been quick to take advantage. In fact, such has been the speed of the shift to oversupply that we are regularly approached by chip suppliers asking if we’d like to increase our orders,” says Blackie.

Industry analysts have reported an increase in cancellations from producers of white goods, which are now more technology-heavy than ever before, as well as manufacturers of more complex devices such as tablets and smartphones.

The average modern car is packed with around 1,500 semiconductors that control everything from infotainment, safety, and electrification to power management. Leading carmakers reported a reduction in production by as much as 40% due to these shortages.

Despite efforts by chip companies and governments to ease the crisis, planned world vehicle production has been cut by between 2- to 3-million units so far this year, analysts say. That is on top of the estimated 10.5-million vehicles that were not built in 2021 because of the shortage.

Microchip-induced supply shortages have affected the domestic SA market too, though it hasn’t prevented new-vehicle sales from growing nearly 20% year to date compared to 2021.

Modern cars’ increased thirst for computing horsepower has seen IT players such as Intel and Nvidia cultivate a key position in the automotive world.

“In the past, the auto industry has had a rather adversarial relationship with chip suppliers, always gouging on price and making little in the way of future commitments,” says Blackie. “I think it’s been realised that automakers are small players in comparison to some of the other industries chip fabs are used to working with, and that a new, healthier relationship is called for.”

The automotive industry accounted for less than 9% of semiconductor volumes in 2020. However, that is expected to rise to just over $116bn by 2030 as electric-vehicle production increases and sophisticated driver assistance features and autonomous vehicles demand increasing levels of processing power.