The whole “computer on wheels” idea that pretty much started with Tesla has now become the standard of the industry. The Porsche Taycan, for instance, has more than 8000 computer chip components baked in at the factory and Porsche fully expects that number to double or even triple by the end of this decade.
Until a few years ago, the car manufacturers treated those computer chip companies like poor relations, but the supply chain disruptions that resulted from the Covid pandemic have caused a sea change in both industries. C.C. Wei, chief executive of the world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co, tells Reuters he had never had an auto industry executive call him — ever — until the shortage was desperate.
“In the past two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One automaker called to urgently request 25 wafers, said Wei, who is used to filling orders for 25,000 wafers. “No wonder you cannot get the support.”
Thomas Caulfield, the CEO of GlobalFoundries, says the auto industry understands it can no longer leave the risk of building multi-billion dollar chip factories to the computer chip industry. “You can’t have one element of the industry carry the water for the rest of the industry,” he tells Reuters. “We will not put capacity on unless that customer is committed to it, and they have a state of ownership in that capacity.”
AutoForecast Solutions (AFS) estimates that computer chip shortages have forced automakers around the world to cut over 13 million vehicles from production plans since the start of 2021. “It’s an arrogant industry,” says Sam Fiorani, vice president of global vehicle forecasting at AFS, referring to traditional automakers who are used to giving orders and having the chipmakers snap to attention to fill them. “Sometimes it just bites them in the rear.”
From Suppliers To Partners
Many semiconductor executives point the finger at the inability of automakers to understanding how the chip supply chain works and an unwillingness to share cost and risk for a large part of the recent computer chip supply chain issues.
But things are changing. Ford has just announced it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that are in the pipeline with other car makers. SkyWater Technology Inc, a chip manufacturer in Minnesota, is talking to automakers about putting “skin in the game” by buying equipment or paying for research and development, CEO Thomas Sonderman tells Reuters.
Working closer with carmakers and their suppliers has resulted in $4 billion worth of long term agreements for power management chips made from silicon carbide, a new material gaining popularity, says Hassane El-Khoury, CEO of ON Semiconductor. “We’re making billions of dollars of investment every year in order to scale that operation. We’re not going to build factories on hope.”
Here’s something interesting. Michael Hurlston, CEO of Synaptics, whose chips power touchscreens, says the recent willingness of automakers to engage with chipmakers could wind up creating new business opportunities as well as help manage risks. Because of the closer dialogue between companies, the automotive industry has warmed up to using OLED screens, which have better contrast and lower power consumption than LCD screens. But OLEDs are perceived to be less durable.
“But that perception has changed pretty dramatically over the last two years. And that perception has changed as a direct result of us being able to talk to (the auto industry),” he said. “The paradigm has really, really shifted for us.” Whether a switch to less durable touchscreens is a good thing for consumers is a separate question.
Chief executives of Japan’s Renesas Electronics Corp and Dutch NXP Semiconductors tell Reuters they are co-locating engineers to help automakers design a new architecture where one computer would centrally control all functions. “They have woken up,” said NXP CEO Kurt Sievers. “They have understood what it takes. They try to find the right talent. It’s a big shift.”
Competition For Talent
Hiring and retaining chip engineers will be a challenge for automakers who will have to compete with Alphabet, Google, Amazon, and each other for talented chip designers. Evangelos Simoudis, a Silicon Valley venture capital investor and adviser who works with both established automakers and startups, has an interesting perspective on the changes afoot in both industries. “I think that that would lead to acquisitions,” he tells Reuters.
“We have understood that we are a part of the semiconductor industry,” says Volkswagen Group’s Berthold Hellenthal, a senior manager for semiconductor management. “We have now people dedicated just to strategic semiconductor management.”
Keep in mind how the inability to deliver on software management goals may have impacted the tenure of Herbert Diess at Volkswagen. The changes taking place in automaking and chip manufacturing will have repercussions that will upset the status quo in both industries.
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