If you are anxious, please shut up and don't mess up. The superposition of natural disasters such as the new crown pneumonia epidemic, earthquake, and snowstorm has caused a “bullwhip effect” in the chip supply chain. Work stoppages, production suspensions, and prosecutions are endless, and the automotive industry has caused rounds of panic due to lack of core.
The lack of core news almost dominated the headlines during the entire Spring Festival. Misfortunes never come singly in the chip industry. As one of the most globalized industries, from the new crown pneumonia epidemic to earthquakes, fires, and snowstorms, any regional natural disasters affect the nerves of the chip industry.
On February 7th, General Motors warned that global chip supply shortages would lead to a reduction in vehicle production this year. The company temporarily closed its three factories located in Kansas, Mexico and Canada. The production capacity of a plant in South Korea was also halved that week, directly affecting models such as Cadillac XT4 and Chevrolet Explorer.
General Motors is not the vanguard of discontinuation. In January, Ford, Toyota, Honda, Volkswagen and other automakers announced production cuts or suspension of some factories. As for the reasons, Honda’s response is very representative. “The reasons for the suspension of production are comprehensive. The shortage of semiconductors, the expansion of the new crown epidemic, and the delay in delivery of other parts have all led to the suspension of production.”
After the Spring Festival, chip supply suffered another heavy blow, mainly from the earthquake in Japan and the snowstorm in the United States. This is a new factor affecting chip supply after the global new crown epidemic.
On February 13, a magnitude 7.3 earthquake occurred in the waters near Fukushima Prefecture, Japan. Renesas Electronics' Naka Factory in Ibaraki Prefecture, Japan was the first to bear the brunt, and production was suspended on the same day. On February 15th, Renesas Electronics resumed wafer production; on February 16th, chip front-end production in the dust-free workshop resumed one after another. However, it will take time for the production capacity to fully recover to the pre-earthquake level.
In recent times, two snowstorms that have swept through multiple states in the United States have killed at least 58 people. In addition to the shortage of power supply and drinking water, Texas, the hardest-hit state, local chip companies have also suffered production suspensions. Among them, Samsung Electronics, NXP and Infineon's factories in Texas have stopped operations. It is reported that Samsung's Austin, Texas plant accounts for approximately 28% of its total production capacity, and NXP's Austin plant accounts for 30% of its total production capacity.
The core shortage incidents one after another caused the industry to fall into panic. But is the core shortage in the automotive industry really that serious?
A white paper issued by IHS Markit stated that, without considering the power outage in Texas and the earthquake in Japan, the shortage of chips will lead to a reduction in global production of 1 million vehicles in the first quarter of 2021, and the shortage will continue into the third quarter.
However, the industry has very different views on the survey data released by IHS Markit. Cui Dongshu, secretary general of the National Passenger Vehicle Federation, believes that the core shortage of auto companies is not as serious as the rumors. In fact, many companies have not clearly felt the large area and serious shortage of chips, but continuous reports have aggravated everyone's anxiety.
Roland Berger Greater China executive director Gu Yatao also believes that the problem of car core shortage is not as serious as imagined. He uses the “bullwhip effect” to explain the truth of core shortage.
“Bullwhip effect” is an economic term that refers to a phenomenon of demand variation amplification in the supply chain. When the information flow is transmitted from the client to the supplier, if the effective information is not shared, the distortion of the information will be amplified step by step, leading to greater and greater fluctuations in the demand information. If this information is distorted and enlarged, it is shown graphically, just like a long bullwhip, so it is called the “bullwhip effect.”
Chip manufacturing involves a lengthy supply chain, from design, manufacturing, to packaging, testing, and finally to delivery to the car factory. There are many supply links and a long supply cycle. According to Gu Yatao’s explanation, with small fluctuations on the demand side, supply information will be transmitted to upstream suppliers level by level, causing an amplification effect of ten times or even dozens of times.
“If we make a rough calculation, we will find that according to the annual vehicle production plan of the car company, we can calculate how much chip capacity the company needs to equip. Under such a mature supply chain system, there will generally not be a huge production gap.” Gu Yatao believes that external factors such as the epidemic and natural disasters have caused this “gap” to be continuously enlarged.
Under the mature supply system formed over the years, automotive chips are basically in a state of relative balance between supply and demand. “Then, someone must have touched a certain point on the bullwhip, and this point caused a small fluctuation in supply, and finally started to be detonated under the influence of public opinion.” Gu Yatao said.
In the end, it doesn't seem to matter whether the company is really short of cores on a large scale.
Because when a company starts to stock up inventory, other companies follow suit. In this way, the supply pressure is further squeezed to upstream chip suppliers, coupled with the industry and the media's hot discussion, the panic of the lack of core has become more and more intense, and even triggered a wave of price increases.
According to information provided by some car companies, the quotations of chip companies have generally increased by 10-30%, and individual products have increased ridiculously. Among them, some middlemen are “making trouble.”
Judging from this wave of chip supply crisis, it is the best explanation for the “bullwhip effect”.
Even if the current chip supply is indeed relatively tight, from a long-term perspective, it will not bring about huge fluctuations in automobile production and sales. Bosch predicts that global automobile production will reach 85 million vehicles this year, surpassing 78 million vehicles in 2020. It can be seen that the lack of cores will not become a constraint to the production and sales of automobiles.(More in Autofun: mitsubishi strada)
