Carmakers consider supply chain overhaul to avert more chip crises

German carmakers are considering building up semiconductor stockpiles to prevent a repeat of the crippling chip shortages that brought assembly lines to a standstill and stalled the production of hundreds of thousands of vehicles worldwide.

The move could prompt an overhaul of the industry’s finely tuned “just-in-time” supply chain, which has been used for decades and relies on daily deliveries to preserve cash. The system also allows for last-minute bidding wars between parts makers.

The bosses of Mercedes-Benz maker Daimler and Volkswagen’s Porsche told the Financial Times that their companies were looking at the change to prevent further bottlenecks.

“We do have to think about increasing inventory,” said Porsche’s Oliver Blume. “But inventory costs money, so that is the last option to take.”

Daimler’s Ola Källenius said: “If it makes sense in the future to go into more levels of safety stock, it is something we would entertain.”

He added that the company would benefit from a “better early warning system” to flag problems further down its chain.

The crisis was sparked by the sudden rebound in global car sales towards the end of last year, which led to a shortfall in crucial components.

Chipmakers, who were already facing increased demand thanks to a lockdown-driven boom in games consoles, laptops and televisions, require a lead-time of several months to increase production.

In the past few weeks, carmakers including Volkswagen, General Motors, Nissan and Honda have been forced to idle plants or slow production as parts makers struggled to secure supplies from contractors.

Ford on Thursday estimated it could lose up to a fifth of production in the first quarter, as it was forced to cut production of its best-selling F-150 pick-up truck.

More than 670,000 fewer cars will be produced in the first quarter of the year as a result of the shortages, according to research by data provider IHS Markit.

The industry is now braced for weeks of further disruption as suppliers race to fill the backlog.

Daimler’s Källenius said the bottlenecks were “primarily a first quarter problem”, but IHS’s report suggests supply constraints will last well into the second half of 2021.

IHS found that shortages were mainly affecting deliveries of microcontrollers, tiny chips used to power everything in modern cars, from parking sensors to airbags and entertainment systems.

About 70 per cent of them are made by a single company — Taiwan Semiconductor Manufacturing Company (TSMC).

Last month, Germany’s economy minister, Peter Altmaier, wrote to his Taiwanese counterpart Wang Mei-hua, appealing for her to intervene on the behalf of carmakers.

Other countries, including Japan and the US, have also lobbied Taipei to help squeeze ease the shortage. US and Taiwanese government officials and corporate executives discussed the issue in a bilateral round table about supply chains on Friday.

Altmaier’s department has also pledged to invest more in homegrown chipmakers to avoid future crises.

However Reinhard Ploss, chief executive of Germany’s Infineon, one of the largest semiconductor manufacturers in the world, said that while the industry would “need to think again” about auto supply chains, there was a limit to how long chips could be stored in a stockpile.

Semiconductors, Ploss said, “have an expiration date, and at some point we can’t continue to use them because of quality considerations”.

Volvo Cars chief executive Hakan Samuelsson said on Thursday that the Swedish group had secured chips supplies for the next four weeks, but that it was “very difficult” to predict what happens afterwards because they are buried within the supply chain.

He said the group, which had avoided shortages so far, was not planning to change the way it sources semiconductors, despite being reliant on a single supplier.

“Having double suppliers might not be the right strategy, it might be better to have one good supplier than three not so good ones,” he told the FT.

Additional reporting by Kathrin Hille in Taipei

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