SURVEY: IC Shortage to Halt Chinese Auto Production? Close to 80% of the Surveyed OEMs Say No Problem at the Moment

Author: KOU Jiandong/ CLS
Translation/edit: MoneyballR
Source: https://www.cls.cn/detail/634462

The news that scarce IC supply caused SAIC-VW and SAIC-FAW to halt production, quickly spread in the market last weekend.
Survey on over 20 Chinese OEMs and tier 1 suppliers shows that situation might not be as bad as reported— over half of OEMs said IC shortage had no effect on their business. However, one third of OEMs expressed concerns that if the situation worsened, it might affect their business.

I heard many rumors recently. One of the most frequent ones is that IC price will increase, around ten times. Also, supply cycle will become longer, a tier 1 supplier told our reporter.

Total production halt is sensationalism
Among over 20 surveyed OEMs and tier 1 suppliers, 9 said IC shortage had no effect on the business and 9 claimed temporarily without effect, almost 80% of surveyed companies.

For now, there is no effect, NIO was prepared for this, EV startup’s senior manager said, there are a lot of changes out there, so you have to closely observe and be prepared. Just to rely on yourself in predicting and changing the situation is not realistic.

Likewise, XPeng and Lixiang also said their companies were not affected and that the business was as usual. Hongqi, GAC, Dongfeng, as well as FAW-Toyota, GAC-Honda, BAIC-Mercedes also said that they had no issues with IC shortages at the moment. However, a Japanese JV manager said there is IC supply risk, so despite the current supply being normal, there is a certain quantity of components that are being stocked as backup.

IC shortage is not that serious at the moment. It was caused by the pandemic, which affected European production capacity. We are still synchronizing with them, but this will not affect our regular production plans, said an inside source in VW-FAW, part of VW China that was rumored to be most hit with the shortage. Production did got affected, but not even close as those sensationalist rumors claimed, the source added. SAIC-VW person said that the company did not halt entire production, it only made temporary adjustments for certain models.

BYD has a complete supply chain for batteries, ICs and other. Not only do we have an ample supply for ourselves, but can supply others too, Shenzhen EV maker said. BYD is the only surveyed company saying that it is able to supply others.

BYD said that IC related product shortages do exist in the automotive industry, but that BYD IC is currently planning to become listed and that A and A+ strategic investment rounds were completed.

Different reasons
It is not hard to see that IC shortage had a different effect on companies and that there were different reasons for that.

Generally speaking, this round of global IC shortage had a rather big effect on legacy car makers, in particular to those with substantial production, but it had a small effect on those with low-end products and EV startups that have low sales.

I have not heard there were shortage issues. After all our production is still small. Also, our CEO came from supply chain, so he knows how to manage inventories, Weima inside source told us.

Aiways cited the same reason. There is an effect, but it is not big. After all we are still ramping up our production, Aiways employee said.

Numbers show that whether it is a leading startup like NIO, XPeng, Lixiang or the likes of Weima and Leap Motor, despite their sales growing at three digit rates, due to the low base they do not take up much of resources and are not significantly affected.

Currently, NETA’s procurement and supply are normal. Deliveries of each model can meet order demands. As a smart NEV manufacturer, we are closely following developments and planning supplier resources, especially imported IC suppliers, as we prepare the stocks in advance and coordinate between production plans and orders in order to reduce the effect of IC shortage on our deliveries as much as we can, NETA senior manager said.

Because models are different, we are OK at the moment (no effect), Dongfeng employee told us. It looks like car brands that use higher grade platform ECU units or ESP or ESC, VSA have been affected the most by the shortage.
Also, since the requirements for the control of components’ inventory depth are different, part of OEMs has made relatively ample preparations. E.g. SGMW inventory depth is three months, while NIO’s quality control VP said the company was prepared well in advance.

Reassessment is inevitable
Just as NIO VP said, traces of global IC structural shortage could have been seen in the middle of the year.

I recall having conversation about this (IC shortage) in July with a senior manager in SAIC. I remember we estimated it will escalate in October, a source inside R&D department by a known smart connected vehicle brand that wanted to stay anonymous told our reporter. If epidemic in US and Europe was not solved, IC factories would be faced with closures, while the global supply chain would weaken, the source said. Starting 20Q1, I believe the procurement departments became aware of that and have piled their stocks, moving the escalation to December, source explained.

This assessment was confirmed by a person in a certain auto company.
This person thinks there are several factors behind the shortage affecting Chinese automotive manufacturing.
1. IC suppliers made a wrong judgement. First, they did not foresee strong Chinese and global auto market recovery, which caused huge demand for automotive ICs. Second, suppliers thought that consumer electronics demand would be bigger due to the pandemic, so the production favored that sector.
2. Automotive IC demand makes only 10% of the global market. By the time suppliers realize there is a problem, capacity cannot be adjusted in a short period of time.
3. Pandemic caused production halts and has affected IC production capacity itself.
Hence, the escalation of IC supply and demand was only a matter of time, the source analyzes.
Supply chain does not discriminate between domestic and overseas, the result is global. If overseas does not do a good control, China will certainly be affected, R&D department source said.