The semiconductor shortage is unlikely to disappear in the next few years. While Europe is slowly growing its semiconductor manufacturing capacity, it hasn’t yet done enough to become fully independent from external supply. How did the industry get here, and what does a protracted shortage mean for Europe’s automakers?
The semiconductor shortage pre-dates many of the supply crunches triggered by the pandemic. Since 2018, US sanctions towards China have disrupted the semiconductor supply chain. Initial tariffs targeted raw materials such as silicon wafers and became one of the factors contributing to the existing shortage.
Exacerbating the crisis in the years since is a combination of both supply- and demand-side factors. At the beginning of the pandemic, initial semiconductor demand forecasts were low, driving relative decreases and shifts in supply investments. However, due to work from home policies and associated increases in demand for consumer electronics, overall demand levels remained steady. From the supply side, long lead times and COVID lockdowns resulted in low inventory levels. As a result, heavy CapEx investments will be needed to boost the manufacturing capacities and restore supply.
Recent BCG modelling quantified the global semiconductor supply-demand gap at 9%, which is projected to decrease slightly over the course of 2023. Despite this, it will be a long and difficult road to recover the supply-demand gap, especially for the automotive industry.
The automotive industry is expected to have the highest growth (11% CAGR) of all semiconductor segments through to 2026. For comparison, consumer electronics is projected to grow by 4%, while smartphones will see only 2%. At this rate, the auto semiconductor market will grow to US$84bn, representing 11% of the total semiconductor market (US$767bn) by 2026. To fulfil this demand, manufacturing capacities need to increase, which may take years.
Naturally, semiconductor manufacturers are responding to the shortages and planning to increase capacities. However, capacity development plans of semiconductor manufacturers differ between technology generations, also referred to as node size in nm.
According to SEMI projections, the largest installed capacity increases in 2023 are going to happen for technology nodes below 16nm, which are not currently used in automotive industry. The relevant technology nodes, such as the 40nm node widely used in automotive MCUs as well as general purpose non-automotive MCUs, are only projected to increase by 4% in capacity next year. For comparison, a 25% capacity increase is forecast for advanced (5-7nm) nodes used in smartphones.
The automotive industry is expected to have the highest growth (11% CAGR) of all semiconductor segments through to 2026
Looking to the situation in Europe, the semiconductor shortage has already heavily impacted the continent, with vehicle production dropping by 2.3 million units in 2021 against initial expectations. This loss accounts for 24% of globally lost vehicles and makes Europe one of the most impacted regions alongside North America, which accounts for 25% of the losses. Furthermore, Europe has exposed its high dependency on external players in the semiconductor market, namely China, Korea, Taiwan and the US. While the recovery from the shortage in principle can still happen with the status quo, that exposed vulnerability calls for action.
With the European Chip Act, European fabs expansions, and Intel’s plans to build fabs in Germany (bringing €33bn (US$35bn) of Intel investments), there is hope that Europe may become less dependent on the external supply. However, fab construction and ramp up can currently take four to five years, so any new high-volume manufacturing (HVM) capacity from the constructed plants will only be seen in 2027.
Additionally, the Chip Act’s €45bn investment might not be sufficient if Europe wants to build a more complete portfolio of fabs, including advanced technology nodes, front and back end. For reference, it takes more than €20bn for an established player to build one advanced fab and more than €5bn to build an expansion of the existing fab.
Another concern for Europe’s semiconductor manufacturing is the potential energy crisis: sometimes a single advanced lithography system consumes 3,0000kWh per day. The share of energy cost in the total fab cost is already fairly high at around 10%, rising to 20% this year and leading to TSMC consuming 6% of Taiwan’s entire power consumption. Can Europe afford such high energy consumption? The question is yet to be answered.
For European automakers this all has big implications. To secure sufficient supply to meet forecasted demand levels, automotive players will need to have a clear understanding of their future semiconductor demand. This will mean identifying specific areas of high risk down to individual semiconductors based on manufacturing capacity bottlenecks and purposely designing a futureproof and resilient semiconductor portfolio.
www.automotiveworld.com
The semiconductor shortage pre-dates many of the supply crunches triggered by the pandemic. Since 2018, US sanctions towards China have disrupted the semiconductor supply chain. Initial tariffs targeted raw materials such as silicon wafers and became one of the factors contributing to the existing shortage.
Exacerbating the crisis in the years since is a combination of both supply- and demand-side factors. At the beginning of the pandemic, initial semiconductor demand forecasts were low, driving relative decreases and shifts in supply investments. However, due to work from home policies and associated increases in demand for consumer electronics, overall demand levels remained steady. From the supply side, long lead times and COVID lockdowns resulted in low inventory levels. As a result, heavy CapEx investments will be needed to boost the manufacturing capacities and restore supply.
Recent BCG modelling quantified the global semiconductor supply-demand gap at 9%, which is projected to decrease slightly over the course of 2023. Despite this, it will be a long and difficult road to recover the supply-demand gap, especially for the automotive industry.
The automotive industry is expected to have the highest growth (11% CAGR) of all semiconductor segments through to 2026. For comparison, consumer electronics is projected to grow by 4%, while smartphones will see only 2%. At this rate, the auto semiconductor market will grow to US$84bn, representing 11% of the total semiconductor market (US$767bn) by 2026. To fulfil this demand, manufacturing capacities need to increase, which may take years.
Naturally, semiconductor manufacturers are responding to the shortages and planning to increase capacities. However, capacity development plans of semiconductor manufacturers differ between technology generations, also referred to as node size in nm.
According to SEMI projections, the largest installed capacity increases in 2023 are going to happen for technology nodes below 16nm, which are not currently used in automotive industry. The relevant technology nodes, such as the 40nm node widely used in automotive MCUs as well as general purpose non-automotive MCUs, are only projected to increase by 4% in capacity next year. For comparison, a 25% capacity increase is forecast for advanced (5-7nm) nodes used in smartphones.
The automotive industry is expected to have the highest growth (11% CAGR) of all semiconductor segments through to 2026
Looking to the situation in Europe, the semiconductor shortage has already heavily impacted the continent, with vehicle production dropping by 2.3 million units in 2021 against initial expectations. This loss accounts for 24% of globally lost vehicles and makes Europe one of the most impacted regions alongside North America, which accounts for 25% of the losses. Furthermore, Europe has exposed its high dependency on external players in the semiconductor market, namely China, Korea, Taiwan and the US. While the recovery from the shortage in principle can still happen with the status quo, that exposed vulnerability calls for action.
With the European Chip Act, European fabs expansions, and Intel’s plans to build fabs in Germany (bringing €33bn (US$35bn) of Intel investments), there is hope that Europe may become less dependent on the external supply. However, fab construction and ramp up can currently take four to five years, so any new high-volume manufacturing (HVM) capacity from the constructed plants will only be seen in 2027.
Additionally, the Chip Act’s €45bn investment might not be sufficient if Europe wants to build a more complete portfolio of fabs, including advanced technology nodes, front and back end. For reference, it takes more than €20bn for an established player to build one advanced fab and more than €5bn to build an expansion of the existing fab.
Another concern for Europe’s semiconductor manufacturing is the potential energy crisis: sometimes a single advanced lithography system consumes 3,0000kWh per day. The share of energy cost in the total fab cost is already fairly high at around 10%, rising to 20% this year and leading to TSMC consuming 6% of Taiwan’s entire power consumption. Can Europe afford such high energy consumption? The question is yet to be answered.
For European automakers this all has big implications. To secure sufficient supply to meet forecasted demand levels, automotive players will need to have a clear understanding of their future semiconductor demand. This will mean identifying specific areas of high risk down to individual semiconductors based on manufacturing capacity bottlenecks and purposely designing a futureproof and resilient semiconductor portfolio.
What does the semiconductor shortage mean for Europe? | Automotive World
Boston Consulting Group explores the implications for a prolonged shortage of chips for Europe's automotive industry
www.automotiveworld.com
