Chipmakers like TSMC and Intel are investing billions of dollars into new factories to boost production, but it takes time to build those factories, and new supplies will come too late to help automakers in 2021. Handout.

You might call it, the perfect “semiconductor” storm.

A series of events — natural and man-made events, including the Covid-19 pandemic — has created a serious shortage of semiconductor products that is expected to last well into 2022.

And according to a report by accounting firm KPMG, the counting cost of these events could dent global automakers to the tune of US$100 billion in lost revenue, VentureBeat.com reported.

Subtract that from the approximately $2.1 trillion automotive market was expected to make in 2021, compared to its revenues of $1.65 trillion in 2020.

Nothing has demonstrated more clearly how much our economy and way of life depend on semiconductors than its current global shortage, KPMG’s principal chip adviser Scott Jones wrote in the report.

Technological advancements and the increasing need for chips across industries have only worsened the shortage.

Chipmakers like TSMC and Intel are investing billions of dollars into new factories to boost production, but it takes time to build those factories, and new supplies will come too late to help automakers and other customers suffering shortages in 2021.

What prevailed was a slow-motion train wreck.

At the start of the pandemic, most automakers slashed orders of nearly all the components of their vehicles in anticipation of a major drop-off in demand for auto sales.

Meanwhile, other semiconductor customers continued or increased purchases of semiconductors to meet the increased demand from work-from-home requirements, driving the need for more PCs, cloud compute capacity, and communications infrastructure.

When demand for vehicles started to accelerate, automakers were stuck behind a large backlog of orders from other larger semiconductor customers who had continued orders throughout the pandemic.

Semiconductor companies were already running at near full capacity from the surge in those orders and had no ability to support the resuming automotive orders. Now, a shortage of a relatively inexpensive chip could hold off production of a $50,000 car.

KPMG saw that companies and manufacturers that use semiconductors cut production and trimmed earnings forecasts, with automakers clearly hit the hardest.

While automakers account for only about 10% of global semiconductor sales, KPMG estimates that they will suffer about 80% of the $125 billion in lost sales due to the shortage — about $100 billion.

General Motors employees work on the assembly line at the GM Arlington Assembly Plant in Arlington, Texas. (Photo by Mike Stone for GM)

Beyond the more than $100 billion in lost revenue, KPMG estimated automakers will have to spend upward of $10 billion to $15 billion in a one-time cost to rebuild buffer inventory, upgrade the supply chain, and secure more capacity for the future.

There are no quick fixes, but industry and government entities all over the world are taking steps to improve the long-term situation.

Automakers are now looking at developing direct relationships with semiconductor makers, said Mark Wakefield, co-leader of AlixPartners’ global automotive practice.

“These things are shocked into existence,” he said.

Automakers have been reluctant in the past to make long-term commitments to buy semiconductors or other raw materials and take on the financial liabilities for such agreements, Wakefield said.

Now, “the risk is real. It’s not a potential” risk of losing production to semiconductor shortages, he added.

According to Jones, automakers should consider these actions:

  • Collaborate more closely with semiconductor manufacturers and foundries. Instead of relying on tier-1 suppliers or on indirect supply-chain management, automakers should collaborate directly with semiconductor manufacturers.
  • Use data-driven supply chain decision-making. As supply chains become more complex, planning by spreadsheet is no longer adequate. “Cognitive planning” can configure and integrate supply chain activities using machine learning and artificial intelligence.
  • Overhaul the process for selecting, designing and sourcing.
  • Reduce reliance on custom parts and instead use standard parts that can be modified or updated via software. Selecting hardware that works with open source software can reduce costs and guarantee access to multiple suppliers.

You may not realize it, but your car is essentially a computer on wheels.

Have you ever wondered how at the touch of a button the car window opens and closes, how if another vehicle comes closer your car’s sensors start beeping, how a slight push to the accelerator pedal can enhance the power delivery of the engine in a fraction of a second?

According to a report at ExpressDrives, there is something working deep inside a car, some software codes that make these physical acts possible. That software runs on a microprocessor.

Then there is the microcontroller, which includes the microprocessor and some peripherals. This microcontroller controls automatic functions needed to run a car — from sending the right amount of fuel to the engine to controlling brakes, and from controlling the human-machine interface (HMI) display to operating automatic seats, windows, mirrors, and so on.

“An entry-level car might have 15-20 such microcontrollers, and a high-end connected car could have more than 100 such microcontrollers,” says Anup Sable, CTO of KPIT Technologies.

Essentially, software codes are written for operating a particular function of a car, and the microcontroller makes that code interact with the physical control.

And the usage of such devices in vehicles is increasing.

“Contemporary petrol/diesel cars use semiconductors in almost all functional areas, such as powertrain, body control, steering system, braking systems, airbag system, infotainment and vehicle telematics system, and so on,” said CV Raman, chief technical officer, Maruti Suzuki India Ltd.

This usage, Raman adds, is only going to go up with the mass arrival of electric vehicles (EVs).

“Electric cars, in addition to the above, use various controllers for managing the electric powertrain.

“The key components of the e-powertrain — including the battery, motor, inverter and the charging system — require additional electronics and semiconductors,” he said.

Sources: VentureBeat.com, ExpressDrives, Driving.ca