The 2020 Covid-19 pandemic brought light to several issues and exacerbated others. In the semiconductor industry, it highlighted how the silicon wafer supplier rate worldwide is not enough to cover the ever-growing demand while undercovering how weak supply chains were.
One industry that was especially affected was the automobile. As of today, the impact of the pandemic has already begun to recede, but political and economic conflicts threaten to put the wafer supply chain once more. In this environment, automobile manufacturers—and governments that tend to look at this industry closely—are worried.
In this article, we’ll explore the positive situation that auto manufacturers find themselves in and what possibilities loom on the horizon for them.
Wafers are products whose manufacture is highly regulated by standardized processes and strict quality requirements. However, the same can be said about their supply chain. Partly, this is because wafers are products that need to be handled with care, and partly because there’s a demand that’s constantly growing, and manufacturers aren’t able to fulfill it.
Many blame the COVID-19 lockdown for the current worldwide shortage. With factories closed and global uncertainty looming, automobile manufacturers canceled semiconductor orders and paused production.
Meanwhile, people at home began to consume more technological products, purchasing computers, monitors, and other equipment for entertainment. School systems and businesses shifted their operations to the virtual world, increasing demand for technology products.
In this environment, wafer suppliers found a quick replacement for the production capacity that automakers had abruptly released. When production resumed, manufacturers found themselves at the back of the line for the chips they required.
To make matters worse, many customers decided to double-order to stock up on inventory after seeing the increase in demand, adding another hiccup on the road to resolving the shortage.
German vehicles dominated the industry for years due to the peak perfection of their combustion motors, which they only achieved through expert engineering. However, the days when a car’s most important functions were mechanical are long gone.
Nowadays, cars are highly integrated with chips to assist drivers during their travels and control the car’s inner workings to ensure that they are always in peak condition. This is known as the engine control unit, which is essential for ensuring that the engine is performing properly.
Wafers are used to design processors and sensors that optimize a car’s inner workings. Semiconductors are also used for entertainment and communication purposes.
Nevertheless, the auto industry doesn’t account for a large part of the world’s chip demand. According to market research firm IDC, it accounts for less than 9% of chip demand in terms of revenue, with $39.5 billion.
That figure is expected to rise by about 10% per year until 2025, but this will be difficult to achieve if there are not enough fabs capable of producing the types of wafers that the automotive industry so desperately requires.
The chips for the automotive sector are different from those meant for other industries. This is primarily due to car manufacturing-specific processes, which are designed with safety in mind. However, they are still manufactured on the same lines as the chips used in everything else.
Car chips are typically 40 nanometers in size and are manufactured on 200-mm silicon wafers. This chip manufacturing technology was last cutting-edge 15 years ago or earlier, but the industry began transitioning to 300-mm wafers in 2000 because it allowed for cost savings.
Even if much of the old 200-mm infrastructure remains, IDC reports that lines producing chips at these old nodes account for 54% of total installed capacity. This figure may not seem concerning.
The problem is that, while demand is increasing, wafer manufacturers are hesitant to build new 200-mm fabs because they do not provide as high a return on investment as newer ones.
Meanwhile, because China currently dominates these wafers’ production at really low prices, there’s no incentive to build new fabs that would have to compete with these cheap products.
According to SEMI, the number of 200-mm fabs will increase from 212 in 2020 to 222 in 2022, which is roughly half the expected increase for the more profitable 300-mm fabs. This increases the capacity of only 750,000 wafers per month.
The chip shortage coincides with national and regional efforts to increase advanced logic chip manufacturing.
The CHIPS Act passed in the United States in mid-2022 resulted in a multibillion-dollar investment aimed at increasing American manufacturing of mature-generation chips on which so many industries rely. In March 2023, the United States began disbursing funds.
The purpose of this bill is to prevent future semiconductor supply chain shortages. After all, all technological artifacts today depend on wafers and chips to function. A global shortage means putting a stop to innovations, optimization, and overall economic growth.
Meanwhile, the EU considered entering the chip-stimulus game as well, investing up to $160 billion in its semiconductor industry. South Korea also announced a $450 billion investment over ten years.
Private investors do not want to be left out of the chip manufacturing industry either. According to SEMI, global capital equipment for semiconductor production increased by 56 percent year on year through April 2021.
Although they may seem simple, wafers have become a fundamental object to our society on every level. This importance is reflected in the constantly growing demand, which doesn’t seem to stop anytime soon.
Although all industries suffer from it, automakers have been especially sensitive, as there are no market incentives to develop more fabs that can cater to their specific needs. In this environment, relying on government projects is their main source of support.
Nevertheless, it’s important to note that, no matter how many new factories are developed, communication between the chip industry and auto executives needs to be more direct and optimal so that signals about supply and demand are clearer. If you want to learn more from a manufacturer in the USA, reach out!
