How to Keep the Automotive Chip Shortage From Happening Again

“The automotive supply chain is a very complicated animal,” said Bob O’Donnell president of TECHnalysis Research at an automotive technology panel held Monday at GlobalFoundries Fab 8 in Malta, N.Y. “And very few people understand it.”

O’Donnell made this observation as part of a discussion involving executives from the auto and chip industries. The panelists portrayed a supply chain whose shortcomings have recently brought car makers to their knees. The panelists—who consisted of executives from chip manufacturer GlobalFoundries, IC maker Analog Devices, system integrator Aptiv, and automaker Ford—all agreed that this must never happen again. 

Meanwhile, the semiconductor content in cars is growing at an unprecedented rate—and those semiconductors are being integrated into new architectures driven by the change to electric vehicles.

“We have to revisit risk management across the board,” said Jonathan Jennings, vice president of global commodities purchasing and supplier technical assistance at Ford. He explained that the industry thought it had been covering itself against risks by using multiple suppliers. However, they did not realize that those suppliers or the suppliers of those suppliers were all using the output of the same small set of semiconductor foundries.

Kevin P. Clark, president and CEO of Aptiv, which as a Tier 1 supplier builds electronics systems for automakers, presented a sense of the scale of his company’s part of the supply chain, saying, “We receive 220 million parts from 400 suppliers daily. Of which we produce more than 90 million components shipped to 7000 to 8000 customers daily.”

Car makers typically deal closely with their Tier 1 suppliers, and Jennings said people in his position rarely met with chip manufacturers directly. “But we have now,” he said.

The suppliers agreed that they need deeper relationships with the car makers. “What it requires is strategic relationships all the way down the chain,” said Aptiv’s Clark. It will take, he continued, “co-investment not just from a dollars standpoint, but from a relationship standpoint.”

What might that mean for chip manufacturers like GlobalFoundries? According to GlobalFoundries senior vice president Mike Hogan, car maker involvement could lead to faster introduction of new chip technologies. For example, the first version of new tech could be designed to meet auto industry standards rather than today’s model, where tech developed for other industries are adapted to car makers’ needs.

This reimagining of the supply chain is happening as the car industry confronts big changes. “If you look at where we’re going from a technology standpoint, we will advance more in the next ten years than we will have in the last hundred,” Jennings said.

The move to battery electric vehicles presents a major chance to simplify the way the electronic systems in vehicles are designed. With existing internal combustion cars, those electronics have been layered on as new technologies were developed and deployed leading to a lot of complexity in both hardware and software, explains Hogan. (For a deep dive into just how complex the software situation has gotten, read “How Software Is Eating the Car.”)

Battery electric redesigns offer “a real opportunity to rethink how a vehicle is architected,” said Aptiv’s Clark. But for the supply chain to work efficiently, he thinks suppliers need to participate in that rearchitecting.

How long will it take before this dream supply chain emerges? It will likely be the work of years, executives say.