DAVID FURLONGER: Chipping away at the backlog

How many semiconductor microchips do you think are needed to manage the electronic controls in your car seats? One? Three? Five?

Try 43. That’s the number you’ll find in the seats of a Mercedes-Benz S-Class, says UK automotive consultancy and data analysis company IHS Markit. In the Chevrolet Corvette, it’s 29. In the Audi A8, 28.

That’s only the start. As BMW global chair Oliver Zipse told his company’s annual results meeting in Munich this week: “We build several thousand chips into each vehicle.”

Little wonder, then, that there’s an international shortage of automotive microchips. An estimated 10.3-million vehicles have gone unbuilt since the start of 2021, says IHS Markit – acquired this year by the S&P Global group – because chip producers can’t meet demand. Even those that have been built have been delayed. In SA, as in most of the world, customers have faced long waiting lists for many models.

A relative exception is China, which has reportedly been paying up to 10 times the going price for chips, to ensure its motor industry is supplied.

Jeremie Bouchaud, IHS Markit’s director responsible for automotive electrics, electronics and semiconductors, says motor companies’ supply lead times for chips – the gap between ordering and delivery to the vehicle assembly line – reached frightening proportions at the peak of the shortage.

The usual long-term average increased from three months to a full year. “That average is flattening but it’s still very high,” he says.

Covid is largely to blame. Motor companies cancelled orders in 2020 when lockdowns closed assembly plants and halted consumer demand. When production restarted in earnest in 2021, they found other industries had taken some of their share and chip producers couldn’t service renewed automotive orders.

Droughts, ice storms, chip factory fires, container shipping shortages and further regional Covid lockdowns made matters worse. Though the situation has started to ease – BMW CFO Nicolas Peter thinks supply levels could be back to something like normal later this year – Bouchaud thinks it could be 2024 before it’s really business as usual.

He told a webinar last week that motor companies could potentially improve the situation by reducing the number of chips used in their vehicles – or at least develop ones that can do multiple tasks.

There are two main chip categories: microcontroller units (MCU) and the more advanced analogs which, with their greater flexibility and capacity to store data, have begun to dominate.

Thus, says Bouchaud, the Mercedes-Benz S-Class seat electronics contain 34 analog chips and nine MCUs.

It’s a similar picture with other electronic controls in cars. As vehicles have become more sophisticated, the number of chips has proliferated. “Today you need an analog chip for every electronic activity,” says Bouchaud.

Generally, the more expensive and larger the car, the more chips are required. “The S-Class has 100 electronic motors [driving onboard technology] and each one needs an analog driver.”

He adds that it’s going to get worse. Electric vehicles need at least twice as many chips as those driven by petrol and diesel internal combustion engines. While the original chip shortage was for MCUs, now it’s predominantly analogs.

A partial short-term solution, says Bouchaud, might be for motor companies to take out some electronic features that motorists rarely use. Luxury carmakers, particularly, are prone to put in every imaginable (and sometimes unimaginable) convenience just in case a customer might find it useful.

A few years ago, after a spate of car breakdowns because onboard computers were overloaded, a German company eliminated over 100 such “useful” features without customers noticing.

Bouchaud says that in 2021, the microchip crisis persuaded some motor companies to temporarily follow suit, in order to reduce chip numbers. Among features to be sacrificed were wireless charging, heads-up windscreen displays and surround-view parking.

Instead of such reactive actions, he says companies may need to take a more proactive, strategic approach to what he calls “decontenting”. If no one wants it, leave it out.  “Companies must ask themselves which features may be sacrificed without losing customers.”

An alternative – or complementary – action is to improve microchips’ performance. Today, says Bouchaud, many are “hyper-specialised”. In other words, they are customised to perform a single task. It is necessary to accelerate the development and use of multipurpose chips.

For now, though, the crisis continues. Russia’s invasion of Ukraine has added another complication. Ukraine supplies most of the world’s exports of neon gas, which is purified for use in the semiconductor industry. Though Bouchaud says this is not a major disruption, it is a further inconvenience the industry can do without.

Other industries, notably phonemakers, are also struggling to meet demand for analog chips. Analysts say there has not been enough investment in new chip manufacturing capacity in recent years; Covid and the other complications have merely highlighted the fact.

What does this mean for the car you are thinking of buying? Frankly, motor companies aren’t sure. Late last year, some were making bold noises about greatly increased production in 2022. Now, says Bouchaud, most are cutting back on those forecasts. One company said it might have to reduce planned car deliveries by up to 900,000 in February and March.

The only certainty is that automotive chip supply will continue to fall well short of demand. Chipmakers themselves are very cautious about prospects. No wonder Bouchaud says: “The supply chain is very fragile.”​