The COVID-19 pandemic had a significant impact on the availability of semiconductor chips, causing disruptions in the automotive industry and the global economy. However, as of mid-2023, the situation has improved, and the industry has adjusted to a new normal. According to S&P Global Mobility’s analysis, the semiconductor shortage that severely affected vehicle production in 2021 and 2022 has become less pronounced, although some exceptions remain.
In 2021, more than 9.5 million units of global light-vehicle production were lost due to the lack of semiconductor chips. The third quarter of 2021 experienced the largest impact, with an estimated volume loss of 3.5 million units. An additional 3 million units were impacted in 2022. However, during the first half of 2023, losses directly related to the semiconductor shortage reduced to approximately 524,000 units globally. Automakers have been able to adapt their production schedules due to more predictable chip availability.
Despite the improvement, the automotive industry’s momentum towards achieving a 100-million global vehicle production year, which was expected before the pandemic, has been set back by a decade, according to S&P Global Mobility’s analysis.
Before the pandemic, semiconductor supply chain challenges were episodic and mainly impacted specific component types or individual suppliers. The pandemic period, however, saw widespread shortages across various suppliers and component types, including microcontroller units (MCUs) and analog based on mature process node capacity. While the auto industry has now adapted to the constrained supply, the constraint remains challenging to identify, making disruptions less visible but still a potential risk.
The demand for semiconductors in automotive applications continues to increase due to the growing complexity of infotainment, advanced safety, and autonomous driving systems. Phil Amsrud, a senior principal analyst at S&P Global Mobility, estimates that the value of semiconductors installed in vehicles will rise from an average of $500 per car in 2020 to $1,400 per car by 2028. Automotive semiconductor demand is rising, while demand from other industries such as mobile phones and PCs is cooling off. Some chip manufacturers have redirected capacity to address the automotive demand, but it is essential to note that not all chips used in consumer electronics are suitable for automotive-grade applications due to different qualification levels and requirements.
While the semiconductor crisis has largely been resolved, the chip supply situation still carries some uncertainty. Demand for certain chip types continues to exceed supply, and the industry remains vulnerable to further disruption. The semiconductor supply chain is under pressure due to the rebound in demand from the consumer electronics industry and the increasing use of semiconductors in automobiles. The lack of capacity for mature process node production and geopolitical trade risks, such as export restrictions on semiconductor materials, contribute to the ongoing challenges.
The consolidation of electronics in cars, with domain controllers and central computers replacing electronics control units (ECUs), drives the demand for automotive semiconductors. Although this consolidation allows for the use of more advanced system-on-chip (SoC) and discrete memory, which benefit from investment in advanced process nodes, it does not reduce the overall number of semiconductors. Analog, discrete, and power components still require mature process nodes and receive less investment.
The automotive industry’s approach to manufacturing capacity may change following the experience of lower volumes and stronger profits during the chip crisis. Automakers had the opportunity to command higher pricing, reduce reliance on incentives, and allocate chips to higher-margin products. Going forward, how different automakers allocate their chip supply will become an important consideration.
The semiconductor crisis and other external impacts have disrupted the auto industry’s growth trajectory by approximately a decade compared to pre-pandemic expectations. Global sales and production were forecasted to exceed 100 million units annually by 2022, but that milestone is now not expected until after 2030. Global light-vehicle sales reached 93.8 million units in 2018, but factors such as declining sales in 2019 and the COVID-19 pandemic caused a significant decline in 2020. Although production and sales are improving, the lost production and sales from 2020 to 2022 cannot be fully recovered. Sales above 100 million units are not forecasted until 2027, and production above 94 million units is not expected until 2028.
In mid-2023, the semiconductor supply is no longer the primary limiting factor for vehicle production. While some parts of the supply chain still pose threats, they appear to be more episodic rather than systemic. Geopolitical risks, such as wafer and packaging capacity in the Asia-Pacific region and trade tensions between the US and mainland China, can still affect the semiconductor supply. However, the industry is working on adding capacity in other regions, including Japan, Europe, and North America.
Lessons learned from the semiconductor shortages during the pandemic, especially the long-term balance between mature and advanced process nodes, are crucial for the automotive industry. The trends of electrification and autonomous driving will impact vehicle architectures and the mix and number of semiconductors used. While the industry has survived the semiconductor crisis, challenges and uncertainties remain, and further adaptations and investments will be necessary to navigate the evolving landscape.
