Chip glut to ease shortage

GLOBAL car production has been compromised in the past two years due to a shortage of semiconductors but just as new or expanded chip factories are starting to come on stream, a global economic slowdown and fears of rampant inflation are driving down demand.

The net effect is developing into a complete turn-around from a semiconductor shortage to a glut.

Production increases, aided by government incentives in some countries including the United States, are met by consumers now more cautious about purchasing vehicles and other devices requiring semiconductors.

According to in-vehicle connectivity software and hardware producer VNC Automotive, there will soon be a sudden chip over-supply as a result of numerous new factories and slackening demand.

VNC Automotive is in the box seat with this information as it develops and supplies software across the automotive ecosystem for the likes Volkswagen Group, Toyota, Honda and Stellantis as well as device and component vendors Bosch, Pioneer, Clarion, Sony, LG and Huawei.

“It’s ironic that the very situation that triggered the shortage for much of the automotive industry should be driving the recovery, now that it has become reversed due to the prospect of recession,” said VNC Automotive CEO Tom Blackie.

“In fact, such has been the speed of the shift to oversupply that we are regularly approached by chip suppliers asking if we’d like to increase our orders.” 

VNC Automotive points to a looming global recession coupled with a cost-of-living crisis that is beginning to bite causing consumers to quickly rein in their spending.

Instead of upgrading to the latest smartphone or ordering a new laptop, wise buyers are choosing to retain their existing devices for longer.

New data shows an increase in cancellations from producers of white goods, which are now more technology-heavy than ever before, while manufacturers of more complex devices such as tablets and smartphones are backing off.

With more chips available, the automotive industry has been quick to take advantage, particularly with the ever increasing demands for high powered chips to drive more sophisticated in-car systems. 

“Vehicles have become ever-more sophisticated, connected to a wider digital ecosystem and increasingly defined by their software, and this thirst for computing power has led to a convergence that has seen traditional IT players such as Intel and Nvidia cultivate a key position in the automotive world,” says VNC Automotive in a statement. 

The company speaks to data that shows the automotive industry accounted for less than nine per cent of semiconductor volumes in 2020, worth an estimated $US38.7bn ($A56.9bn). 

However, that is forecast to rise to just over $US116bn ($A170.66bn) by 2030 as EV production increases and sophisticated driver assistance features and autonomous vehicles demand ever increasing levels of processing power to accommodate advanced artificial intelligence algorithms.

In dollar terms, it means the average semiconductor content per car will rise from around $US712 ($A1047) in 2022 to $US931 ($A1369) in 2025.

Unfortunately, a chip glut does not necessarily mean buyers will see much of a price reduction on a new vehicle but on a positive note, new vehicle supply will become less of an issue.

Electronics control every facet of a new car including the powertrain (engine and transmission), safety equipment and infotainment through to simpler systems like electric windows, lights, locking, starting, alternator, power steering, suspension and brakes.

Before the pandemic, the small components were sourced from only a few factories globally including Taiwan and South Korea, where COVID-19 affected production and caused supply chain problems for raw materials and finished products.

This, the rush to work from home and long-lasting lockdowns caused a knock-on effect as demand for vehicles evaporated while other technology sectors boomed as people and their employers kitted out home offices and upgraded entertainment systems while they were stuck inside.

When vehicle demand rebounded spectacularly due to people holidaying closer to home due to international travel restrictions and not wanting to expose themselves to infection on public transport, car-makers were forced to cut production due to the semiconductor shortage which then hit other industries and also forced up the price of new and, in particular, used vehicles.