March 24, 2023
Global Semiconductor Market
Since the first half of 2020, the auto industry has been facing a systematic decline in production primarily due to the Covid-19 pandemic that heavily impacted manufacturing for a long while and has since contributed to supply chain disruptions of most items, including auto parts. One of the casualties of this has been the crisis in the semiconductor industry, not only from manufacturing and supply chain disruptions, but also stiff competition from home computers as more and more people began working from home. Almost 3 years have passed since the start of the chip crisis and many of the earlier car sales forecasts have not materialized. In April 2022, experts expected 80.6 million cars would be sold [1] in 2022, but in fact just 66.1 million cars [2]were actually sold, a difference of 14.5 million (-18%). In 2021, the sales forecast was for 78.0 million cars and only 66.7 [2] million cars were sold; a gap of 11.3 million (-14%) vehicles [3]. In total for 2021-2022, over 25 million cars were not manufactured mainly due to the crisis in the semiconductor industry. The US market was one of the most heavily hit and it appears that 2023 may be even worse. For those considering purchasing a new car nowadays, waiting times range from 6 to 18 months, depending on the brand and model. “We’re in probably year two of a semiconductor shortage that is causing automakers to make fewer cars than they can. And because of that, there’s a squeeze in supply and it’s been pushing prices up,” Flavio Volpe, president of the Automotive Parts Manufacturers Association, told Global News. [4]
What about the electrical vehicle (EV) segment? Semiconductor chip usage is 10 times greater in EVs than in gas powered cars (3000 chips\vehicle vs. 300 chips in a gas powered vehicle like the Ford Focus [5]). So, you would expect the impact of the chip shortage to be tougher on EV producers but, in reality, this did not occur in 2022. In fact, the opposite occurred with a positive trend in sales; up 39% compared to a year ago with over 10 million cars [6] sold. Why did this happened? Part of the answer is driven by government environmental regulations as they have increased pressure on automakers to slash carbon emissions (with the ultimate target of zero-emission vehicles [7]).
As far as long-term demand in the semiconductor industry is concerned, it is expected to more than double in comparison to current levels and will exceed USD $1 trillion by 2030 [8] in a low case scenario up to USD $1.380 trillion in the base scenario.
Although the automotive semiconductor market represents about 10% of the total market, a trend that is expected to generally continue through 2030, it is overshadowed in comparison with computer applications, that are much larger and more profitable. From a buyers’ point of view, this segment is the real bottleneck. In the past, buyers were able to select suppliers and dictate terms & conditions and contracts tended to be shorter (6-12 months). Today, they try to transfer this into long-term conditions but it has proved difficult as the market has become a sellers’ market. Additionally, there is a problem with standardization of technical specifications in leading-edge technology applications chips in the smaller size ranges (14 nanometers or smaller) which are used, but not required by many automakers. [10]
How will the situation of a shortage of chips coupled with increased demand through 2030 be resolved and when? The semiconductor industry reached 90% utilization in 2020, so it is considered a mature industry. As such, companies are currently mapping plans and laying out enormous investments. Experts say new semiconductor fabrication takes 5 years [11].
Total Investments by Production Date
So where is all the money going and what are the timelines? “Semiconductor Engineering” did extensive analysis on this subject based on company reports in 2021-2022 [12]. The chart below shows investment amounts, by company, based on start of production (SOP) dates. A total of USD $100 billion is expected to be invested over the 5-year span of 2023-2027. The largest investors with the nearest start-of-production (SOP) dates in 2024 are Intel (USD $37 billion) and Samsung (USD $17 billion).
In conclusion, there is a chance the chip shortage will stabilize in 2024 however, to be able to overcome the crisis in the automotive industry next year not only requires readiness from the semiconductor manufacturers but also resolving the shortage of critical raw materials coming from Ukraine and Russia, standardization of technical specifications, transitioning to long-term strategies and developing trustful relationships between all parties – no easy task!.
References:
1. S&P Global Mobility (2022, April 20), Global Auto Production Forecast Downgraded Further for 2022. Retrieved from https://www.spglobal.com/mobility/en/research-analysis/latest-global-automotive-forecast-changes.html
2. Statista Research Department, (2023, Feb 6), Number of cars sold worldwide from 2010 to 2022, with a 2023 forecast. Retrieved from https://www.statista.com/statistics/200002/international-ca-1990
3. Mathilde Carlier (2023, March 1), Automotive industry worldwide – statistics & facts. Retrieved from https://www.statista.com/topics/1487/automotive-industry/#topicOverview
4. Aya Al-Hakim (2022, December 28), Planning to buy a car in 2023? Expectations will have to ‘change’, experts caution. Retrieved from https://globalnews.ca/news/9356719/canada-market-2023-planning-to-buy-a-car/
5. Tomorrow’s World Today (2022, February 14), The Microchip Shortage Continues to Hurt the Electric Car Industry. Retrieved from https://www.tomorrowsworldtoday.com/2022/02/14/the-microchip-shortage-continues-to-hurt-the-electric-car-industry/
6. Mark Kane (2023, February 11). Global Plug-In Electric Car Sales Exceeded 10 million in 2022. Retrieved from https://insideevs.com/news/651947/global-plugin-car-sales-december2022/
7. LYLE NIEDENS (2022, December 20), Consumer Thirst for Electric Vehicles Remains Unquenched. Retrieved from https://www.investopedia.com/demand-for-electric-vehicles-remains-high-6950977
8. Vyra Wu (2023, January 10), Global semiconductor market to exceed US$1 trillion in 2030, at CAGR of 7%, says DIGITIMES Research. Retrieved from https://www.digitimes.com/news/a20230109VL202/forecast.html
9. Fortune Business Insights (2022, April), The global semiconductor market is projected to grow from $573.44 billion in 2022 to $ 1,380.79 billion by 2029, at a CAGR of 12.2% in forecast period, 2022-2029. Retrieved from https://www.fortunebusinessinsights.com/semiconductor-market-102365
10. Burkacky O., Lingemann S., Pototzky K. (2021, May 27), Coping with the auto-semiconductor shortage: Strategies for success. Retrieved from https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/coping-with-the-auto-semiconductor-shortage-strategies-for-success.
11. Sperling E., (2022, November 17), Where All The Semiconductor Investments Are Going. Retrieved from https://semiengineering.com/where-all-the-semiconductor-investments-are-going
12. Christensen L. (n.d.), Semiconductor Engineering from company reports. Retrieved from https://semiengineering.com/where-all-the-semiconductor-investments-are-going