The semiconductor shortage that has plagued the auto industry for the past two years may soon be overturned, according to leading connectivity software and hardware supplier VNC Automotive, which predicts that a shortage of chips critical to high-tech features will suddenly become a glut.
“Ironically, the situation that caused shortages in so much of the auto industry should drive the recovery, now that it’s been reversed by the potential for a recession,” CEO Tom Blakey said.
Supply chain disruptions caused by a series of disasters at critical production plants have been compounded by a massive surge in demand for electronic devices as the pandemic hits and working from home becomes the default for many.
However, with a global recession looming and a cost-of-living crisis beginning to unfold, consumers quickly reined in their spending. Instead of upgrading to the latest smartphone or ordering a new laptop on credit, savvy buyers are choosing to hold on to their existing devices for a while longer.
This drop in consumer demand has freed up production capacity throughout the supply chain, from chip manufacturing to logistics, and the auto industry has been quick to take advantage.
“In fact, such has been the speed of the shift to oversupply that chip suppliers regularly approach us asking if we’d like to oversupply,” Blackie said.
Industry analysts have reported an increase in cancellations from producers of white goods, which are now more tech-heavy than ever, as well as manufacturers of more complex devices like tablets and smartphones.
Vehicles are more complex than ever, connected to a broader digital ecosystem and increasingly defined by their software, and this thirst for computing horsepower has led to a convergence that has seen traditional IT players such as Intel and Nvidia cultivate a major niche in the automotive world. This alignment of platforms has also smoothed the path that now allows automakers to take advantage of the oversupply in these high-power chips.
“In the past, the auto industry had a somewhat antagonistic relationship with chip suppliers, always gouging prices and making little future commitment,” Blackie said. “I think it has been recognized that automakers are small players compared to some of the other industries using fab chips, and that there is a need for a new, healthier relationship.”
The automotive industry accounted for less than 9% of semiconductor volumes in 2020, with an estimated value of US$38.7 billion. However, that was expected to rise to just over $116 billion by 2030 as electric vehicle production increases, and sophisticated driver assistance features and self-driving vehicles require increasing levels of processing power to accommodate more advanced AI algorithms. Analysts indicate that the average semiconductor content per vehicle will increase from about $712 in 2022 to $931 in 2025.
“It may take some time for this freer-flowing offering to reach car-buying consumers as manufacturers clear the backlog that has been built up over the past two years,” Blackie said. “But in a time of economic gloom, it’s nice to find a silver-sided cloud.”
Automotive VNC technology is currently used in more than 35 million vehicles, across 20 of the world’s largest OEMs, including VW Group, Toyota, Honda and PSA. It develops and supplies software to equipment suppliers such as Bosch, Panasonic, Clarion, and Pioneer, and hardware vendors such as Sony, HTC, LG, and Huawei.