China’s EV industry may go into partial freeze in 2022 as global chip shortage leaves 1 million vehicles short of vital components

On Dec 27, 2021 45

The production line of new-energy vehicles in the Yunnan provincial capital of Kunming in southwest China on December 3, 2020. Photo: Xinhua

Global foundries can produce enough semiconductor chips and microcontrollers to supply 4 million electric cars in China, according to an industry guild
That leaves a shortfall of 1 million vehicles in a market where demand may jump to 5 million units in 2022, the China Passenger Car Association said

A chill may partially freeze China’s booming electric car industry in the first half of 2022, as the global chip shortage forces smaller assemblies to suspend production, according to a forecast by the industry guild of the world’s largest vehicle market.

Global foundries can produce enough semiconductors, microcontroller units and high-end chips with artificial intelligence (AI) processors for 4 million of the so-called new energy vehicles (NEVs) in China, according to the China Passenger Car Association (CPCA). That leaves a shortfall of 1 million vehicles, based on the industry guild’s forecast of China’s NEV demand in 2022.

“The shortage of automotive chips that had hindered the growth of the car market has yet to ease,” the CPCA said in a research report early this month. “The bestselling models still need chips to reinforce their production, and get their backlog of orders executed.”

The dire forecast shows how the ripple effects since late 2020 from the miscalculation of global demand by foundries continue to be felt, and are showing no sign of abating. A resurgence of Covid-19 infections around Southeast Asia this recent summer disrupted production at several chip foundries, exacerbating the pressure on a straining semiconductor supply chain in the third quarter.

Silicon wafer negative color in die attach machine in semiconductor manufacturing

Key automotive chip suppliers to China’s carmakers include Germany’s Infineon Technologies, Dutch firm NXP Semiconductors, Texas Instruments of the United States and Japan’s Renesas Electronics, with some of their production lines located in Southeast Asia.

China is beginning to feel the brunt of the disruptions, at a time when car owners are being encouraged to ditch their petrol-guzzling cars for pure electric, plug-in hybrid and fuel-cell cars to help the nation achieve carbon neutrality in 2060. Sales of NEVs are poised to double this year to 2.4 million units, from 1.17 million in 2020.

“Chip shortage is still a problem that baffles the whole automotive industry,” said William Li, chief executive of NIO, one of the trio of trailblazing smart EV start-ups listed in New York. “An outbreak of Covid-19 could lead to suspension of chip production and threaten the entire supply chain.”

Chips are used in manufacturing and in the electronic systems of vehicles. Demand for semiconductors soared, buoyed by the increasing application of intelligent features in new vehicle models such as self-parking, satellite navigation, voice command and Internet of Things (IoT) technology.

In November, Tesla’s Shanghai-made Model 3 and Model Y vehicles were being shipped with USB ports that can only be used for charging, not for data transfer, due to the supply shortage. Previously, the USB ports were usable for both charging and data transfer, according to the carmaker’s specifications.

The latest data showed that China’s automotive chip market was valued at 61 billion yuan (US$9.5 billion) in 2018, mostly comprising imports, according to David Zhang, a researcher for the automotive industry at the North China University of Technology.

Normally, a smart EV with driver-assistant technology, voice recognition function and sophisticated in-car entertainment systems requires three times more chips than a car powered by an internal combustion engine.

Young drivers in China are having an increasing penchant for battery-powered cars that have intelligent features.

The CPCA said that top smart EV assemblers including Tesla and its Chinese rivals such as NIO, Xpeng and Li Auto, should have secured enough supply of chips based on the contracts they signed with the chip makers.

NIO’s Li said that an expanded capacity of semiconductors from the beginning of this year could help ease automotive chip shortage in the second half of 2022.

“Every player is hopeful that their assembly lines can run the fastest in the second quarter or the second half of 2022 with enough chips supplied,” said Gao Shen, an independent analyst in Shanghai. “But real demand for NEVs may beat the forecast of 5 million units given the strong buying interest in China.”

German luxury carmaker Audi is working intensively with all partners to optimise resources and undertake further countermeasures to mitigate the impact, according to Giorgio Delucchi, head of the brand’s sales for mainland China and Hong Kong.

Swiss bank UBS predicted in March that three out of every five new cars taking to China’s streets would be powered by batteries by 2030.

“The rapid penetration of NEVs in China will prompt global chip makers to further expand capacity,” said Peter Chen, an engineer with car components company ZF TRW in Shanghai. “A balance of demand and supply will not be achieved in just one or two years.”

Author: Daniel Ren, SCMP