Ever since the global semiconductor shortage has locked horns with the global automobile industry, it seems as if the industry’s growth has come to a standstill. And in the face of a situation so challenging, global carmakers are forced to go beyond the ordinary and think out of the box to tackle the situation. But is thinking out of the box really the solution? Let’s find out.
What is a semiconductor?
Before we begin, it’s crucial to know what a semiconductor is. At a very basic level, a semiconductor can be defined as a material that’s got silicon in it, which is known to conduct electricity in a better way than an insulator but less than a pure conductor such as aluminium or copper.
The best part about a semiconductor is the fact that its conductivity can be easily altered by introducing impurities through a process called doping in order to achieve specific conductivity as per the component in which the semiconductor is. Also dubbed as chips and semis around the globe, semiconductors are omnipresent in almost all things electronics, from appliances, computers etc., to vehicles and heavy machinery.
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What is the big deal about a semiconductor?
Unlike other conductive components, semis have a wide range of useful properties such as having variable resistance, reaction to heat and light, easy passing of current etc. With so many advantages, semis are used majorly for energy conversion, signalling and switching, and that is why semis find their use-case in almost all sectors. In fact, it wouldn’t be wrong to say that the presence of manufacturers which test and make semis are synonymous with a healthy overall economy.
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The Global Semiconductor Shortage
The year 2020 was filled with problems for the world economy, first the COVID-19 crisis and then the global semiconductor shortage; the year 2020 was indeed a black period. And while the COVID-19 crisis was being worked upon with vaccine development, the global semiconductor shortage continued to wreak havoc.
In simple terms, the global semiconductor shortage is an ongoing crisis where the global demand for semiconductors is substantially exceeding the global supply of semiconductors which has affected more than 170 countries. The difference in demand and supply has directly led to the increase in prices, shortage of components and a halt in the growth of several industries, especially industries related to automobiles, gaming consoles, computers etc. The combined effect of COVID-19 and the semiconductor shortage has put production at a standstill for almost all major automakers around the globe. Since the part is so crucial to the production of cars, several highest-selling cars are simply lying in production lines with no solution. And the worst part is that the crisis has been going on for much longer than anticipated.
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The Problem?
When it comes to procuring semiconductors, there seems to be a hierarchical system in place. OEMs buy semiconductor components they require from major and prominent suppliers, which themselves source from other suppliers down in the hierarchy. And now with the global semiconductor shortage, the relevant and pressing issue of lack of transparency has come to light. Questions are being raised on the traditional sourcing routes and the monopoly of a few suppliers controlling the supply chains.
A senior partner at McKinsey, Ondrej Burkacky, was quoted at an event that “There was the fallacy of thinking that you had a choice between two suppliers, but the truth is that they both had the chips made in the same foundry. The only seeming difference is how it is “sourced”- directly or via middlemen like Bosch and Continental, the major supplier chains.”
The solution
While there is no denying the fact that the global semiconductor shortage has truly crippled the automotive industry around the globe, at the same time, it has also forced global OEMs to think out of the box and be creative in finding out alternatives to source the semiconductors or whether to even source it. From finding the right manufacturer of semiconductors and reducing the use of semis altogether to reconfiguring parts to minimise or do away with the use of semis, global automakers are doing everything in their power to deal with the crisis.
Learning from the problems at hand, Mercedes-Benz is the first major OEM to do away with the hierarchy-based sourcing loophole adopting a direct line of communication with chip suppliers across the globe, including the major ones located in Taiwan. Much like Mercedes, Volkswagen too has announced a similar plan to directly set up communication with suppliers in Asia, hinting at “strategic partnership” for the future. On the move, McKinsey’s Burkacky said that “carmakers should consider direct investments in production or longer contracts with terms of more than 18 months.
Apart from establishing direct links, OEMs across the globe are also devising ways to aid manufacturers in tackling the rising gap between demand and supply. And to do this, OEMs are constantly working toward reconfiguring existing components. Automotive giant Volkswagen has already started working on ways to reduce semiconductor dependence and limit it only to absolute necessity.
On this, Annette Danielski, the CFO of Volkswagen’s trucking unit, said, “If we change the software, we can use fewer semiconductors and achieve the same functionality. In clearing away some space from the control system’s motherboards, there would be a lesser need for semiconductor chips.”
Another leading automaker, Daimler, is also working on a similar line and is trying to redesign its ECUs to lessen the dependence on semiconductors. They have also reprogrammed software to now utilise other chips that aren’t scarce in the market, enabling the company to better manage production and achieve pre-shortage growth.
General Motors has taken the task to another level by formalising plans to create multi-use chips. In collaboration with names like STM, Infineon and Qualcomm, the OEM aims to develop microcontrollers that will replace multiple chips offering different functions. The microcontrolled will combine different functions and do away with the need to use multiple chips, which can directly tackle the chip shortage scenario.
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Conclusion
With many minds collectively working towards a common goal, we hope OEMs find a robust solution to the crisis since the global semiconductor shortage doesn’t seem to end anytime soon. And even if OEMs are able to devise a solution to the problem, they will still need to think out of the box in order to be well equipped for a similar crisis in the future.
We hope you found this article on Semiconductor Shortage helpful. Have a look at some of our other articles like Difference Between 2 Channel And 4 Channel Amp and What Is Tata Motors IRA Connected Car Technology or visit Carorbis Blog for more.
Frequently Asked Questions?
Q1. What is a semiconductor?
Ans: A semiconductor can be defined as a material that’s got silicon in it, which is known to conduct electricity in a better way than an insulator but less than a pure conductor such as aluminium or copper.
Q2. Where is Semiconductor used?
Ans: Unlike other conductive components, semis have a wide range of useful properties and several advantages, due to which is it used in almost all sectors such as gaming consoles, computers, cars etc.
Q3. What is the global semiconductor shortage?
Ans: The global semiconductor shortage is an ongoing crisis where the global demand for semiconductors is substantially exceeding the global supply of semiconductors which has affected more than 170 countries.
Q4. When will the semiconductor shortage end?
Ans: Starting off in 2020, the global semiconductor shortage still continues to haunt the automobile industry, with no potential end anytime soon.
