Navigating the supply chain semiconductor disruption

COVID-19 created disruption and exposed supply chain constraints in every corner of the economy. But nowhere has the misalignment been as significant as in the automotive semiconductor supply chain, where hundreds of thousands of half-finished vehicles sit mothballed due to a lack of semiconductors. Exacerbated by the problems in shipping capacity in air and sea, the difficulty of expanding new chipmaking capacity quickly and a shrinking domestic semiconductor manufacturing capacity – at a minimum, the bottleneck in supply could last between six and nine months.

COVID-19 has taught businesses that they need to be more nimble – something that isn’t easy to do, especially in the automotive ecosystem.

The perfect storm

The shortage of essential automotive chip components – specifically integrated circuits (ICs) such as microcontrollers (MCUs) and application-specific integrated circuits (ASICs) – hit the industry like a Category 5 hurricane.

In the first half of 2020, there was a dramatic shift in semiconductor fabrication away from auto ICs, as carmakers slammed on the brakes and shut plants for two months during the pandemic. Automotive ICs, which had peaked at 10.4% of semiconductor fabrication market share in the last week of December 2019, fell to just 3.6% by the week of May 8, 2020, according to market researcher VLSI Research. “Auto IC sales [in] total dropped 44% over this period,” says VLSI Research CEO Dan Hutcheson. Meanwhile, total semiconductor sales rose 4% in the first half of 2020, as demand for home computing and networking equipment surged and chipmakers pivoted away from auto ICs (1).

Adding to the problem was the warp-speed transition from doom and gloom to fast and furious. Given the grim market outlook for car sales at the beginning of the pandemic, the supply chain did not plan for additional capacity. Suddenly, vehicle demand grew as consumers stopped using public transportation and ride-sharing services. This pandemic-related demand forced both new and used car sales to come roaring back, requiring the automotive supply chain to start back up.