Chipmakers have a message for car makers: It’s your turn to pay

A shortage of computer chips, which forced global automakers to cancel production plans for millions of cars over the past two years, is easing on a new and permanent cost for car companies.

(Sign up for today’s cache, our technology newsletter, for insights on emerging topics at the intersection of technology, business and policy. Click Here To subscribe for free.)

Executives in both industries say “war room operations” to manage chip shortages are becoming inherent features of vehicle development.s. This has shifted the risk and some of the costs to the automakers.

Newly formed teams such as General Motors Co., Volkswagen AG and Ford Motor Co. are in direct talks with chipmakers. Automakers such as Nissan Motor Co Ltd and others are embracing longer order commitments and higher inventories. Major suppliers including Robert Bosch and Denso are investing in chip production. GM and Stelantis have said they will work with chip designers to design the components.

Taken together, the changes represent a fundamental shift for the auto industry: higher costs, more practical work in chip development, and greater capital commitment in exchange for better visibility into their chip supplies, executives and analysts say.

It’s a U-turn for automakers that previously relied on suppliers — or their suppliers — to source semiconductors.

For chipmakers, the still-developing partnership with automakers is a welcome and overdue reset. Many semiconductor executives point the finger at a lack of understanding of how chip supply chains work — and a reluctance to share costs and risks — for a large part of the recent crisis.

The costly changes are coming together as the auto industry moves on from an even more costly crisis, with an estimated 13 million vehicles cut from global production since early 2021.

he never called

CC Wei, chief executive of Taiwan Semiconductor Manufacturing Company, the world’s largest chip maker, said he had never called an auto industry executive — unless the shortage was desperate.

“The last two years they call me and treat me like my best friend,” he recently told a laughing crowd of TSMC partners and customers in Silicon Valley. An automaker asked to request 25 wafers immediately, said Mr. Wei, who is used to placing orders for 25,000 wafers. “No wonder you can’t get support.”

GlobalFoundries Inc Chief Executive Thomas Caulfield said the auto industry understands it can no longer afford to build multibillion-dollar chip factories for chipmakers.

“You can’t have one element of the industry carrying water to the rest of the industry,” he told Reuters. “We will not hold the capacity until the customer has committed to it, and they have an ownership position in that capacity.”

Ford has announced that it will work with GlobalFoundries to secure supply of the chips. Mike Hogan, head of automotive business at GlobalFoundries, said more such deals are in the pipeline with other carmakers.

Skywater Technology Inc., a chip maker 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.

Chief executive Hassan Al-Khouri said working closely with carmakers and their suppliers has raised $4 billion in long-term agreements for power management chips made from silicon carbide, a new material gaining popularity. Is. “We are investing billions of dollars every year to grow that operation,” he told Reuters. “We’re not going to build a factory on expectation.”

Michael Hurlston, CEO of Synaptics Inc., whose chips drive touch screens, which did some auto production, said that recently, more direct collaboration with automakers could create new business opportunities as well as manage risks. could.

Mr Hurlston said the automotive industry has warmed to using OLED screens, which tend to be less durable than LCD screens, a factor that many believe leads to better contrast and lower power consumption. Will limit their use in cars though.

“But in the last two years that perception has changed quite dramatically. And that perception has changed as a direct result of being able to talk to us (the auto industry),” he said. “The paradigm really, really. I have transferred to us.”

The chief executives of Japan’s Renesas Electronics Corp and Dutch NXP Semiconductors NV have told Reuters they are co-engineering to help automakers design a new architecture where a single computer will centrally control all operations.

“They have woken up,” said NXP CEO Kurt Seavers. “They have understood what it takes. They try to find the right talent. It’s a big innings.”

‘We got it’

According to Gartner, the average semiconductor material per vehicle will exceed $1,000 by 2026, doubling from the first year of the pandemic. An example: The battery-powered Porsche Taycan has over 8,000 chips. According to Volkswagen, this will double or even triple by the end of the decade.

“We have understood that we are part of the semiconductor industry,” said Volkswagen Group’s Berthold Helenthal, a senior manager of semiconductor management. “We now have people dedicated to strategic semiconductor management.”

Saving and keeping chip engineers safe will be a challenge for automakers, who will have to compete against the likes of Alphabet Inc.’s Google, Amazon.com Inc. and Apple Inc., said Silicon Valley venture capital investor and advisor Evangelos Simoudis. Both established automakers and startups. “I think this will lead to acquisitions,” he said.

Unlike Tesla Inc., which designs its own Core chips, Mr. Simaudis said traditional automakers will have to defer production of older auto models as they invest in new ones.

AutoForecast Solutions (AFS) estimates that microchip shortages have forced automakers around the world to cut more than 13 million vehicles from production plans by early 2021.

“It’s an arrogant industry,” said Sam Fiorani, vice president of global vehicle forecasting at AFS. “Sometimes it bites them from behind.”