Asian chipmakers are rushing to up their production capacity to cope with a global shortage that has especially hit carmakers – but the firms have warned that the supply gap may take many months to plug.
Automakers from General Motors to Stellantis and Honda Motor are shutting assembly lines because of the shortages, which in some cases have been made worse by US sanctions against Chinese chip factories.
The chip shortfalls come as Japanese automakers Toyota, Nissan and Honda reported third quarter results this week buoyed by recovering demand in China and the United States, but the shortage has clouded their earnings outlook.
Compatriots Subaru Corp and Mazda Motor Corp have cut production as well, as have other automakers including Volkswagen AG.
A surge in demand for electronics as more people stay home due to the coronavirus pandemic has been blamed for the shortages of semi-conductors, forcing the carmakers to cut production just at a time when sales have started to recover more quickly than expected.
Eight-inch chip manufacturing plants owned mostly by Asian firms, which tend to make older, less sophisticated chips, are particularly under strain primarily due to under-investment in recent years. The majority of these factories make auto chips.
Consumer demand in China, especially for cars, has snapped back unexpectedly quickly from the coronavirus crisis, and orders for products such as laptops and mobile phones in regions still struggling with pandemic restrictions, such as Europe and the United States, have also picked up.
The global concerns about the chip shortage were underscored at recent quarterly earnings calls held by companies from Taiwan Semiconductor Manufacturing Co Ltd (TSMC) to South Korea's SK Hynix.
"We are under great pressure now," said Zhao Haijun, co-CEO of China's top chipmaker Semiconductor Manufacturing International Corp.
The combination of supply shortages and surging demand has put pressure on prices too. UMC expects overall chip prices to rise 4-6% this year due to supply constraints set to last for another few quarters, while Renasas said that they have been negotiating for a 15% increase on auto chips and between 10% to 20% for other chips.
"We are working hard with semiconductor manufacturers, and the supply crunch should ease as capacity growth catches up this summer," Yasushi Matsui, the chief financial officer at key Toyota Motor Corp part supplier Denso Corp, said last week.
Chipmakers who supply auto companies outsource most of their production to contract manufacturers like Taiwan's TSMC, which analysts say, often prioritise orders from electronics clients who account for nearly all their revenue.
The supply shortages were exacerbated by the previous US administration's actions to curtail technology transfers to China, which hit Chinese chip factories, as well as by a fire at a chip plant in Japan and coronavirus lockdowns in South-east Asia.
Honda Motor Co and Nissan Motor Co are scheduled to report third-quarter results this week along with Toyota Motor Corp.
Analysts polled by Refinitiv expect Toyota, the world's largest automaker by vehicle sales, to forecast a profit of 1.5 trillion yen ($14.22 billion) for the year ending March 31. That compares with a 1.3 trillion yen profit Toyota forecast in November.
Honda will likely forecast a profit of 463.6 billion yen, Refinitiv data shows, compared with its forecast of 420 billion yen. Sources told Reuters that Honda will lower its domestic production this month of models such as the Fit subcompact and the N-series mini-vehicle.
Nissan is likely to forecast a 230.09 billion yen operating loss for the full year, according to Refinitiv, down from a loss forecast of 340 billion yen.
- Reporting by Reuters