China's car-chip shortage could persist for as long as a decade

Carmakers around the world have been hit in recent weeks by a worsening global semiconductor shortage that’s led to production cuts and staff layoffs.
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File photo of a semiconductor chip and board (Bloomberg)
File photo of a semiconductor chip and board

China’s automotive-chip shortage could persist for as long as a decade, but it has little to do with the current supply glitches snarling production, according to the official who oversees the nation’s key new energy vehicle technology development platform.

Short-term factors like mistakes in ordering due to incorrect forecasts and factory disruptions because of Covid-19 will resolve naturally, Yuan Chengyin, general manager of the National New Energy Vehicle Technology Innovation Center, said. Rather, China’s rising demand for electric cars, its lack of domestic technical knowhow and sustained geopolitical tensions will emerge as much more serious issues.

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“China’s chip industry is under tremendous pressure," Yuan said in an interview with Bloomberg News on Tuesday. “I don’t think the issue can be solved overnight."

Also Read : Missing auto-chips snarl car production at factories worldwide

Carmakers around the world have been hit in recent weeks by a worsening global semiconductor shortage that’s led to production cuts and staff layoffs. A deputy secretary general of the China Association of Automobile Manufacturers said last week that the chip shortages could’ve had a relatively big impact on China’s car industry from late December and may persist into the second quarter.

The problem as Yuan sees it is more systemic. The nation’s supply chain will continue to be vulnerable to global forces until Chinese companies build up their own manufacturing capabilities and make the semiconductors used in electric vehicles themselves.

“That’s the huge challenge," said Yuan, who’s also behind the country’s first government-backed car-chip industry body, the China Automotive Chip Industry Innovation Strategic Alliance. “If we don’t address it, the auto industry could go back to where it was decades ago" in terms of competitiveness.

China is the world’s biggest automotive market, with wholesale deliveries totaling 25.3 million units in 2020. Vehicle sales are expected to increase this year for the first time since 2017, reaching about 27.2 million units. Demand for EVs offered by the likes of Tesla Inc. and Nio Inc. should help drive the growth.

Import Reliance

File image: Production line in china (representational image) (REUTERS)
File image: Production line in china (representational image) (REUTERS)

Despite its size, China imports the vast majority of the chips used in car production. Scaling up won’t be easy. There are more than 100 different sorts of chips used in a car, helping to control everything from steering to communication, speed adjustments and power transmission. And the semiconductors for cars versus those in an iPhone or laptop need to be more robust, able to withstand a range of temperatures and much greater forces.

Also Read : Trump's China tech war backfires on automakers as chips run short

Cars also have longer lifespans than consumer-electronics goods, so the chips need to be highly durable, as well as affordable, considering all automakers are grappling with shrinking profit margins. Additionally, chips used in cars can take up to five years to develop.

Chinese firms need to enhance their competitiveness in the supply chain and speed up development of chips and operating systems, Xiao Yaqing, head of the Ministry of Industry and Information Technology said on Jan. 16.

Yuan declined to be drawn on whether Chinese carmakers will face production suspensions due to the global chip shortage.

A representative for Geely Automobile Holdings Ltd. said last Monday that production hasn’t been impacted by the chip shortage. BYD Co., the Shenzhen-based, Warren Buffett-backed automaker that also makes rechargeable batteries and solar panels, said it has a complete supply chain in batteries and chips, allowing it to not only be self-sufficient but also supply other companies.

The China Automotive Chip Industry Innovation Strategic Alliance has been identifying semiconductor products that Chinese chipmakers can focus on as a starting point, Yuan said.

First Published Date: 19 Jan 2021, 15:03 PM IST
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