As a result of the pandemic and its lockdowns, of natural disasters, plus political conflicts, nothing is as it was. While the most dramatic phase of disruption is probably behind the automotive industry, the shortages for certain raw materials, specifically semiconductors, is still ongoing. Supply chains have been disrupted and stocks drained. Production capacities are out of joint because short-term demand has jumbled all planning. And chip shortage remains an everyday problem. There is no more business as usual. This is the “New Normal.”
Says Peter Popp, head of Continental Automotive Purchasing: “Despite some overall progress, we were still confronted with back orders and long delivery times in 2022. This applied to several chip families. For some chips the situation may not significantly improve before 2025. Until then, we must manage back orders in some areas.”
What has changed?
The market mechanics have been turned upside down. In the past, car sales defined production volumes and chip orders. Now, car production is ruled by the availability of components. This transition is accelerated by the growing electronic content of vehicles. Digitization and connectivity, e-mobility, automated driving, and telematics require more chips. “We are facing a situation, in which production capacities lag behind the growing demand,” Popp says.
Automotive chip orders are growing by 12 % year on year, while other industries grow in the magnitude of 3 %. The good news is that this growth will be a motivation for new players to enter the chip production market. This can improve sourcing and will bring technological impulses.
“We are looking for solutions to proactively avoid future bottlenecks,” Popp summarizes. While the automotive chip demand used to account for less than 10 % of the global chip production up to only a few years ago, the automotive industry may well become the second biggest chip buyer by 2026 – only three years from now! “At that level you can’t act in the short term. You need some serious long-term planning,” Popp emphasizes.
What are we doing?
Therefore, Continental is analyzing which chip technologies and which chip numbers will be required in a three-to-five-year time span, because that is the lead time for new chip plants. “We are making decisions now, and we are feeding the structure and level of our future demand into the supply chain.”
To expand that, purchasing has set up a new team to analyze the global chip market on the background knowledge of all Continental automotive business areas. “This way we will know which manufacturing capacities we can expect for individual chip technologies and we can ensure that our requirements are better represented in future contracts with the chip industry. Over the oncoming years the focus will remain on structural widths of above 100 nm and on mixed-signal chips.”
Continental is responding to the New Normal by developing a holistic and consistent management of entire delivery and value chains. Also, the company is strengthening its business continuity planning to become more resilient against consequences of natural disaster and political conflicts. Chip acts in several countries/regions will help to diversify the Continental chip production chains.
So, while the supplying industry does have a “tiger by the tail,” Continental is proactively making sure that the chip industry can better match production capacities to future demand. “With our expertise we are an excellent partner for the chip makers, helping them to understand a Tier 1’s future needs.”