Mitigating the effects of future shortages is on everyone’s mind. As the shortage downturn continues, countries and companies are planning on how to conquer the next. Lack of diversification and traditional methods of chip capacity is no longer safe. The vulnerabilities of manufacturing within a single geopolitical area and the lack of collaboration between chipmakers and other equipment manufacturers are dangerously significant.
To keep history from repeating itself, federal organizations are doing what they can to ensure investments for a resilient chip future. Automakers are becoming more proactive in their supply chains by partnering with chipmakers to secure future stock capacity no matter the demand. These steps will make all the difference in the future.
General Motors Signs with Global Foundries as Automakers Suffer from Shortage Impacts
The chip shortage has been rough on automakers for years now. Despite the downturn for advanced chips in white goods, automotive and industrial original equipment manufacturers (OEMs) still face allocation issues. It will take some time to achieve a supply-demand balance, especially with automotive demand still at record highs. In the meantime, automakers and original chip manufacturers (OCMs) are doing what they can to mitigate future shortages.
General Motors recently entered a long-term agreement with GlobalFoundries to establish exclusive production capacity of U.S.-produced chips. This deal, the first of its kind, demonstrates dedicated production capacity exclusively for key auto suppliers for General Motors at the GlobalFoundries fab in upstate New York.
Doug Parks, executive VP of global product development at General Motors, said, “the supply agreement with GlobalFoundries will help establish a strong, resilient supply of critical technology in the U.S. that will help GM meet this demand while delivering new technology and features to our customers.” The agreement couldn’t come at a better time as Mr. Parks believes that General Motors’ usage of semiconductors will double over the coming years as technological capabilities in cars increase.
The deal is expected to provide the framework for future agreements between GlobalFoundries and other automakers. Historically, automotive OEMs and OCMs have yet to work together. The last few years of the global chip shortage have mercilessly exposed the dangers of that traditional method.
This is especially true within the development of all-electric cars and trucks that require more chips than traditional vehicles. While the deal is the first of its kind, that doesn’t mean that other automakers are making similar agreements with OCMs. Volkswagen recently signed a contract with Onsemi to provide modules and semiconductors. Onsemi will offer a complete electric vehicle (EV) traction inverter solution for VW, with semiconductors being integral in support of front and rear traction inverters. ZF invested in Wolfspeed’s construction of its first semiconductor facility in Europe. The research and development unit of the new facility will be majority owned by ZF, whose first research applications will be chips in power converters for electric ships and wind turbines.
As the automotive shortage drags on, these partnerships will continue to increase over the next few months. These effects are still being felt and will continue through 2023, with Ford’s recent billion-dollar loss from 100,000 vehicles undelivered, highlighting the impact.
How Europe is Combating the Chip Shortage
The chip shortage hurt, and now countries are doing what they can to prevent a similar situation in the future. The U.S. has spent the last few years enticing chipmakers to its shores through the CHIPS and Science Act. The law allocates $52 billion in subsidy programs and incentives for semiconductor fabrication plant construction and research. Outside the federal level, states are passing their programs to make their locations more appealing to OCMs eager to take advantage of federal programs.
India and Vietnam are competing to become the new Asian chip market supplier. Foxconn, Google, Samsung, and other big-name chipmakers have been viewing different locations and entering joint partnerships for new facilities in either country. Both countries have various benefits, from subsidies to talented labor supply, that make them attractive options for OCMs.
The European Semiconductor Industry Association (ESIA) forecasts volatility within the semiconductor supply chain. Despite a possible .3% decline in market growth, challenges within the automotive chip supply chain.
The most significant effort to fortify semiconductor supply resilience is the European Union’s Chips Act. The act aims to bolster production and set up emergency measures to prevent shortages through an investment of €43 billion, both public and private. It should boost the EU’s share of global chip production from 9% to 20% by 2030. This will be done in tandem with a chip diplomacy initiative as the EU recognizes the importance of its foreign partnerships.
Should the Chips Act pass, several domestic and foreign chipmakers have been considering expanding production within the EU. STMicroelectronics, a Swiss firm, received €600 million from the European Investment Bank to support research, development, and pre-industrialization within Europe. STMicroelectronics has several facilities that operate within Italy and France, with a new fab in eastern Sicily planned to begin production in 2026. German-based chipmaker Infineon is planning its €5 billion investment for a new semiconductor plant in Dresden, hinging on the passage of the EU’s Chips Act.
If the Chips Act passes, Infineon’s Dresden fab should begin production in 2026. It would be the most significant single investment in the country’s history and add demand from end markets, including automotive, industrial, and renewables.
Intel is also considering a semiconductor mega-site in Germany should the Chips act pass. Throughout the last few years, Germany has risen in popularity as an attractive location for semiconductor production. US chipmaker Wolfspeed recently announced its plans for Germany's largest silicon carbide (SiC) manufacturing facility. As the first chip factory in Europe for Wolfspeed, it will rely on the European Commission for approval.
Should the Chips Act pass, Europe can quickly fortify its domestic capabilities and future resilience to chip shortages.
Sources:sourcengine
