Focus: Chip makers have a message for car makers: Your turn to pay

Synaptics Incorporated

03/08/2022 23:08

By Jane Lanhee Lee, Sarah Wu and Kevin Krolicki
    Aug 3 (Reuters) - The shortages of computer chips that
forced global automakers to scrap production plans for millions
of cars over the past two years are easing - at a new and
permanent cost to the car companies.
    What had been “war room operations” to manage chip shortages
are becoming embedded features of vehicle development, say
executives in both industries. That has shifted the risks and
some of the costs to automakers.
    Newly created teams at the likes of General Motors Co
 GM.N , Volkswagen AG  VOWG_p.DE  and Ford Motor Co  F.N  are
negotiating directly with chipmakers. Automakers like Nissan
Motor Co Ltd  7201.T  and others are accepting longer order
commitments and higher inventories. Key suppliers including
Robert Bosch  ROBG.UL  and Denso  6902.T  are investing in chip
production. GM and Stellantis  STLA.MI  have said they will work
with chip designers to design components.
    Taken together, the changes represent a fundamental shift
for the auto industry: higher costs, more hands-on work in chip
development and more capital commitment in exchange for better
visibility in their chip supplies, executives and analysts say. 
    It is a U-turn for automakers who had previously relied on
suppliers – or their suppliers – to source semiconductors.
    For chip makers, the still-developing partnership with
automakers is a welcome - and overdue reset. Many semiconductor
executives point the finger at automakers’ lack of understanding
of how the chip supply chain works – and an unwillingness to
share cost and risk - for a large part of the recent crisis.
    The costly changes are coming together just as the auto
industry appears to be moving past the worst of an even more
costly crisis that by one estimate has cut 13 million vehicles
from global production since the start of 2021. 
    
    THEY NEVER CALLED
    C.C. Wei, chief executive of the world’s biggest chipmaker
Taiwan Semiconductor Manufacturing Co  2330.TW , said he had
never had an auto industry executive call him - until the
shortage was desperate.
    “In the past two years they call me and behave like my best
friend,” he told a laughing crowd of TSMC partners and customers
in Silicon Valley recently. One automaker called to urgently
request 25 wafers, said Wei, who is used to fielding orders for
25,000 wafers. “No wonder you cannot get the support.” 
    Thomas Caulfield, GlobalFoundries Inc  GFS.O  chief
executive, said the auto industry understands it can no longer
leave the risk of building multibillion-dollar chip factories to
chipmakers.
    “You can't have one element of the industry carry the water
for the rest of the industry,” he told Reuters. “We will not put
capacity on unless that customer is committed to it, and they
have a state of ownership in that capacity.”
    Ford has announced it will work with GlobalFoundries to
secure its supply of chips. Mike Hogan, who heads
GlobalFoundries’ automotive business, said more deals like that
are in the pipeline with other car makers.
    SkyWater Technology Inc  SKYT.O , a chip manufacturer in
Minnesota, is talking to automakers about putting “skin in the
game” by buying equipment or paying for research and
development, Chief Executive Thomas Sonderman told Reuters. 
    Working closer with carmakers and their suppliers has
brought onsemi  ON.O  $4 billion in long-term agreements for
power management chips made from silicon carbide, a new material
gaining popularity, said Chief Executive Hassane El-Khoury.
“We're making billions of dollars of investment every year in
order to scale that operation,” he told Reuters. “We're not
going to build factories on hope.”
    Michael Hurlston, the CEO of Synaptics Inc  SYNA.O , whose
chips drive touch screens, which had held up some auto
production, said the recent, more direct collaboration with
automakers could create new business opportunities as well as
managing risks.
    Hurlston said the automotive industry has warmed up to using
OLED screens, which are less durable than the LCD screens, a
factor that many perceived would limit their use in cars despite
better contrast and lower power consumption.     
    “But that perception has changed pretty dramatically over
the last two years. And that perception has changed as a direct
result of us being able to talk to (the auto industry),” he
said. “The paradigm has really, really shifted for us.”
    Chief executives of Japan’s Renesas Electronics Corp
 6723.T  and Dutch NXP Semiconductors N.V.  NXPI.O  have both
told Reuters they are co-locating engineers to help automakers
design a new architecture where one computer would centrally
control all functions. 
    “They have woken up,” said NXP CEO Kurt Sievers. “They have
understood what it takes. They try to find the right talent.
It’s a big shift.”
    
    ‘WE HAVE UNDERSTOOD’
    The average semiconductor content per vehicle will exceed
$1,000 by 2026, doubling from the first year of the pandemic,
according to Gartner. One example: the battery-powered Porsche
Taycan has over 8,000 chips. That will double or triple by the
end of the decade, according to Volkswagen.
    “We have understood that we are a part of the semiconductor
industry,” said Volkswagen Group’s Berthold Hellenthal, a senior
manager for semiconductor management. “We have now people
dedicated just to strategic semiconductor management.”
    Securing – and keeping – chip engineers will be a challenge
for automakers, which will have to compete against the likes of
Alphabet Inc's  GOOGL.O  Google, Amazon.com Inc  AMZN.O  and
Apple Inc  AAPL.O , said Evangelos Simoudis, a Silicon Valley
venture capital investor and adviser who works with both
established automakers and startups. “I think that that would
lead to acquisitions,” he said.
    Unlike Tesla Inc  TSLA.O , which designs its own core chips,
Simoudis said traditional automakers will have to juggle
production of legacy auto models as they make new investments.
    AutoForecast Solutions (AFS) estimates that microchip
shortages have forced automakers around the world to cut over 13
million vehicles from production plans since the start of 2021.
    "It's an arrogant industry," said Sam Fiorani, vice
president of global vehicle forecasting at AFS. “Sometimes it
just bites them in the rear.”

 (Reporting by Jane Lanhee Lee in Oakland, Calif., Sarah Wu in
Taipei and Kevin Krolicki in Detroit
Additional reporting by Tim Kelly in Tokyo and Victoria
Waldersee in Berlin 
Editing by Kevin Krolicki and Matthew Lewis)
 ((kevin.krolicki@thomsonreuters.com; +813 6441 1800; Reuters
Messaging: kevin.krolicki.thomsonreuters.com@reuters.net))