As Lead Times Grow, European Automakers Call for More EU-made Chips
Manufacturers in Europe are increasing pressure on chipmakers to improve their production capacities.
The impact of the chip shortage on the automotive industry has been well-documented. As of June, 500,000 vehicles globally are now delayed in their deployment because of disruptions in the semiconductor chip supply chain, according to the European Association of Automotive Suppliers, CLEPA.
But how are these supply chain disruptions specifically affecting European automotive OEMs and engineers?
Which Components Are in High Demand in Europe?
The European Automobile Manufacturers’ Association (ACEA) says European car output dropped 23 percent last year—down five million units from the previous year.
Further, CLEPA reports that the automotive industry is hurting most for advanced microcontrollers in process nodes below 40nm. However, advances in battery management systems, connected vehicles, and ADAS may heighten demand for smaller nodes as small as 16nm.
Visual of the many functions in an automobile that require silicon chips. Image used courtesy of Bloomberg
Cars today implement between 20 to 40 MCUs that control functions like engine and power steering, HVAC, and door locks, among others. EVs and autonomous vehicles will only hike demand for even more advanced chips. Further, modern vehicles can require as many as 100 electronic control units (ECUs), which require advanced processors.
Manufacturing Stalls in Asia
In recent years, much of Europe’s chipmaking has shifted to Asia where labor costs are much lower. In fact, CLEPA reports that the European automotive industry sources 60 to 70 percent of its chip production to manufacturing facilities in China and Taiwan. However, these plants have been hit hard by overwhelming demand and pandemic-related slowdowns.
“We are living hand to mouth at the moment,” said one senior executive at a major European manufacturer when speaking to the Financial Times. “The Asian brands are doing much better… they have the relationships with their local suppliers. If there was localized supply in Europe it would really, really help.”
European Suppliers Respond
Both the European Union (EU) and private sector firms are taking positive steps to ease the chip shortage and implement long-term safeguards by increasing European production capacity and introducing new regulations.
Engineering and technology giant Bosch has announced that it will increase its capital expenditure in chipmaking facilities. The news that Bosch plans to invest more than €400 million in expanding its two wafer fabs in Germany comes just a few weeks after opening its new fab in Dresden. By the end of 2023, 4,000 m2 of new clean-room space will be added to its Reutlingen facility.
Other chipmaking giants also have plans to build more European chip factories, especially in Germany and France. Intel has announced it will spend €80 billion to expand its semiconductor manufacturing operations in Europe. Infineon has also opened a €1.6 billion power semiconductor factory in Villach, Austria, months ahead of schedule. While the company estimates that it holds an 18.5 percent share of the power semiconductor market globally, only seven of its 20 production facilities are in Europe.
Infineon chip factory in Villach, Austria. Image used courtesy of Infineon
“I think for the better part of the next five to 10 years, we’re going to be chasing supply not demand,” GlobalFoundries CEO Tom Caulfield recently said in an interview with CNBC. GlobalFoundries’ clients include the likes of Qualcomm, NXP, and Qorvo. The multinational company recently reported that it is sold out of its semiconductor chip supply through 2023.
European automakers Mercedes, VW, and BMW have also suggested that the chip shortage could last until 2023.
A Collective Initiative is Needed
The automotive industry accounts for 37 percent of all semiconductor demand in Europe, according to CLEPA.
In a letter to the European Commission, Oliver Zipse, the head of the European automakers’ lobby group ACEA, said that a “concerted European initiative” will be needed to establish sites in Europe that are capable of rivaling chipmaking giants in Asia.
In early September, it was announced that European legislation was being drafted to ensure EU “tech sovereignty” as the ongoing chip shortage continues to present a major threat to the EU’s plans to become a world leader in all things digital.
ASML employees at a Veldhoven, Netherlands factory. Image used courtesy of Michael Kooren and Reuters
President of the European Commission Ursula von der Leyen said that the European Commission will propose a new “European Chips Act” that will set out the bloc’s ambition to become a digital leader.
CLEPA asserts that Europe has the capacity to design advanced automotive chips, but this fabless industry has shrunk in half in the last 10 years. ACEA claims that European chipmakers will need to prioritize increased production for 14–28nm chips while also keeping an eye on demand for microchips 7nm and smaller. Eric-Mark Huitema, the director general of ACEA has expressed that Europe urgently needs to minimize its dependence on overseas suppliers for these essential components.