Semiconductor Shortage Crisis in Automotive Industry
Semiconductor Shortage Crisis in Automotive Industry
COVID-19 pandemic has resulted in the overall economy to slow down. However, there are still some businesses/industries that have been positively affected: such as; medical equipment and supplies, freights, computer and telecommunication equipments, etc. The computer and telecommunication equipment manufacturing industry has exponentially grown during the COVID-19 pandemic due to the reason that various businesses have adjusted the form of work, i. e., to allow their employees to work from home instead, including the needs for electronic devices that help for more comforts and entertainments at home, thus, resulting in the demands for semiconductors, the key component parts of such equipments, to exponentially grow, as well.
Currently, there are 17 main semiconductor manufacturers around the world which account for the market sharing of over 90% of the semiconductor markets in 2020, that manufacture semiconductors for use in the wireless communications equipment industry, wired communication devices, smart phones, personal computers, computer peripherals, industrial machineries, automotive, electrical appliances and servers and data centers, and another 7 of them are semiconductor manufacturers for the automotive industry which are NXP, Infineon, NVDIA, AMD, Qualcomm, Texas instrument and Renesas. These seven manufacturers account for the semiconductor sales for the automotive industry altogether calculated to be in the proportion of 24% of the total sales, with NXP, Infineon, Renesas and Texas instrument as being the main manufacturers of the semiconductors for the automotive industry.
Automotive Information Center, Thailand Automotive Institute, has analyzed the causes of the semiconductor shortage in the automotive industry that there are many factors other than the fire incident at the semiconductor manufacturing factory that cause the semiconductor shortage in the automotive industry.
Firstly, during the second quarter of 2020, automotive factories around the world had temporarily suspended the manufactures to implement actions in response to the government lockdown measures in each country consequently resulting in the semiconductor purchase orders for vehicles to cease. Moreover, the demands for use of the semiconductors in the growing electronics industry, have caused the semiconductor manufacturers to adjust their production lines to manufacture the semiconductors in the electronics industry, especially, the communication devices used with 5G systems, Personal Computers (PCs) and servers.
Secondly, although the automotive industry has recovered from its slowdown and returned to the manufactures again, but, the semiconductor order process takes several months which, in this connection, a purchase order on the semiconductor from the original factory requires the time up to 4 months in advance while a purchase order on the same from the new factory of the original manufacturer needs the additional time of more than 6 months. And if an automotive manufacturer should desire to switch to a new manufacture, it would take an additional time of another 1 year or even more for the preparation of the manufactures. In addition, if knowledge body from the original manufacturer’s patent should be used in the manufactures of the semiconductors, action on the application for the manufacturing license would require to additionally be submitted which needs to go through the process within the company to confirm the purchase order, thus, resulting in more time to be spent.
Thirdly, it is not that easy to increase the production capacity in the existing production lines because the semiconductor industrial capacity utilization rate is about 88%, which is rather very high rate, and the increase in the production capacity by setting up a new factory will take more than 2 years for the construction. The manufacturer needs to design the semiconductor and the production processes to be in line with the customers’ requirements which will take several more years for the preparations before the manufactures of a great number of the semiconductors can be started.
Not with standing to the foregoing, Office of the Board of Investment has approved the investment promotion measure improvement of manufacturing industry on Silicon Wafer, Semiconductor and Printed Circuit Board Assembly as these are products with a trend of increasing market demands, requiring more sophisticated technology and high investment whereby the Silicon Wafer manufacturing industry will be exempted from the corporate income tax for a maximum of 10 years, from the original maximum of 8 years. The semiconductor industry will be exempted from the corporate income tax for a maximum of 8 years from originally 5 years provided, however, that the investment in the machineries must be 1,500 million Baht, at least, while the Printed Circuit Board Assembly manufacturing industry will likewise be exempted from corporate income tax for a maximum of 8 years from originally 3 years provided, however, that the investment in the machineries must be 500 million Baht, at least.
However, the semiconductor shortage problem has not happened just to the automotive industry only. The development of technology and COVID-19 pandemic have contributively resulted in the semiconductor demands to soared up beyond the current production capacity. In this regard, both the government and private sectors of many countries have exerted their efforts to solve the problem through the management, procurement and supply chain processes as well as promoting investments to increase the production capacity. Nevertheless, the investment in setting up a new factory would take time which may result in the semiconductor shortage problem to further continue for a period of 1 to 2 years.
Those interested in this issue can keep pace with the development, by reading measures to solve the semiconductor shortage problem in a short and long term at Thailand Automotive Institute website: http://www.thaiauto.or.th or the “Automotive Information Center”.