Daily Management Review

Global Chip Shortage Forces Carmakers To Get Innovative


Global Chip Shortage Forces Carmakers To Get Innovative
When it comes to buying computer chips direct from the manufacturer, re-configuring automobiles, or making chips with missing parts automakers must come up with new ideas to meet the shortage of semiconductors in the world.
The shortfall, caused by shortages in supply and an increase in the demand for consumer electrics in the aftermath of the pandemic, has hit the automotive industry with a hammer blow and millions of vehicles around the world not being manufactured because of the missing parts.
The problem has lasted longer than originally anticipated the manufacturers, including Daimler and Volkswagen have had to reconsider the way they produce.
Car makers typically purchase parts from big suppliers like Bosch as well as Continental and Continental, who then purchase parts from suppliers further up the chain.
In some instances, it has resulted in an absence of transparency, said Ondrej Burkacky who is a senior partner at McKinsey.
"There was the fallacy of thinking that you had a choice between two suppliers, but the truth is that they both had the chips made in the same foundry," he said.
It's changing as per Daimler Purchasing Manager Markus Schafer.
The German manufacturer of Mercedes-Benz cars has established direct lines for communication between all chip makers as well as wafer manufacturers in Taiwan the company's president said during the IAA auto show in September.
Volkswagen CEO Herbert Diess speaks of "strategic partnerships" the company has formed with companies in Asia.
Chip manufacturers must be treated differently due to their importance in the industry, according to Stefan Bratzel from the Center for Automotive Management.
"You have seen the problems that arise when you treat the chip companies like other suppliers and stop the calls," he said.
McKinsey's Burkacky suggested that car manufacturers should think about direct investment in production or contracts with longer periods of greater than 18 months.
"Not much of that has been implemented yet," he added.
Meanwhile, car designers are working to assist manufacturers in managing the shortage of supplies.
Annette Danielski, chief financial officer of Volkswagen's trucking business Traton explained that Traton was trying to make room on motherboards for control systems.
"If we change the software, we can use fewer semiconductors and achieve the same functionality," she said. "That sometimes takes a long lead time because the regulatory authorities intervene, but there are areas where you can change something quickly."
Daimler uses new design concepts for its control unit. Instead of relying on a specific chip, they are designed to integrate with a different one that could be used when there are problems with delivery Daimler's chief of purchasing Schafer explained.
Tesla is the most popular and best model in this.
The company changed its software within three months, so that smaller chips could be utilized to allow to the U.S. electric car maker to weather the recession more effectively than others.
General Motors has said it will cooperate with chip manufacturers such as Qualcomm, STM and Infineon to develop microcontrollers which combine the functions previously handled by individual chips.
"We are trying to create an ecosystem that is more resilient, more expandable and always available," a company spokesperson said.
Certain carmakers are stockpiling or what BMW refers to as "hole shoring."
The entire car is constructed with the exception of a part that is missing which can be assembled fairly easily once it arrives.
Many auto companies are employing this approach. Some vehicles are not equipped with specific functions that are controlled by chips.
Semiconductors can also be used to make top-quality automobiles, such as electric vehicles, whereas customers are also subject to longer wait periods for cheap combustion engines.
The strategy is slowly getting to its limit. Volkswagen recently had to suspend temporarily the production of electric vehicles at the Zwickau factory in Germany.
How well these strategies for coping are working isn't yet known.
"The bill will be presented in mid or late 2022, when you can see who came out of the crisis well and who did not make it so well," said McKinsey's Burkacky.