Automakers are having a hard time getting enough chips to build vehicle components from lumbar supports to navigation systems. Pandemic-inspired work layoffs, rising demand, and disrupted transportation logistics all contribute to the global semiconductor shortage. As a result, automakers the world over are expecting revenues to slide by $14 billion in Q1 2022 and nearly $61 billion by the end of the year.
Main Reasons for Chip Scarcity in the Industry
Carmakers are often slow to implement updates to components because they require complex internal verifications to ensure durability and safety. Keeping tabs on industry changes is difficult and meeting consumer demands cannot easily be achieved merely by opening another production line and hiring more employees.
At the start of the pandemic, automakers assumed that the demand for cars would plummet, prompting them not to shore up on semiconductors. At the same time, consumer electronics experienced a surge, diverting semiconductor supply to that market.
Realizing that their projections were incorrect, automakers restored their manufacturing plans as car demand resurged. They made attempts to place orders, but chipmakers were preoccupied with consumer electronics, and shifting focus back to automotive chips would mean going through the tedium and cost of parts re-appropriation. To make matters worse, many components came at a 5% to 10% price increase.
Chip deficits are a major challenge for car manufacturers and hardware design businesses. For startups and electronic design houses, the obstacles are easier to overcome.
How Car Makers Can Overcome Chip Shortage
Based on our experience we have outlined some practical steps that design houses and automakers can take to address these challenges on a broad scale and maintain a healthy supply of chips for production.
For existing products:
- Design around the shortage
Electric circuit design can take a variety of forms, however, design quality varies according to efficiency levels. Hence, creative engineers can tweak their diagrammatics to develop chips based on the absence of a critical component. The real concern is establishing a balance between costs and design efficacy. Earlier analog chip models can work as well as newer microchips, except that they’ll be less compact. The smaller the chip, the less expensive it is.
- Keep your options open
As with electronic design houses and startups, auto manufacturers who experience chip sample shortage can adopt a chip replacement strategy. In this case, the manufacturer should select batch semiconductors with higher or smaller performance capabilities suitable for the desired stage of development. If properly designed, the device can run albeit with fewer features. It’s better to work with a de-equipped product than no product at all.
- Avoid the grey area
The grey area consists of unaccredited networks and suppliers who buy electronic components for resale on the spot market at marked-up prices. Many operate legally but exercise caution when sourcing components from grey market vendors. This could prove viable for a short-term, less price-reactive, broad quality tolerance product. However, the grey market is recognized by poor batch control and quality control measures, as well as the blending of counterfeit chips of substandard quality and lower tolerance specifications.
- Avoid the counterfeit trap
Substandard chips may serve as a driver for cyberattacks. Such spoofed chips are a major impediment to the growth of the semiconductor, automotive, and consumer electronics industries. For instance, a counterfeit semiconductor in a tank may reveal information about the payload to the competition. A rogue program in the fake chip could cut off the air supply of an aircraft. A counterfeit chip could be instructed to stall a car in a ransomware heist.
- Take note of terms and conditions
Most chip suppliers have updated their terms and conditions of sale. They now include 90-day cancellation lead times rather than the usual 30 or 45-day terms. This change plays out when contemplating double or triple orders across different suppliers. At a point, you may realize that you’re holding more inventory than you had envisaged.
- Join preferred programs
Semiconductor brands such as Microchip offer Preferred Customer Programs to guarantee order deliveries beyond six months. These programs demand commitment to a supplier for the long term, usually one year or more.
How Startups Can Handle Chip Shortage
To startups and design houses that work on the development of novel solutions, the absence of electronic components is not limiting to their efforts. The design procedure usually takes a couple of years. New solutions can be developed with 3 to 5 samples even when specific automotive semiconductors are not being produced in bulk. This is done in hopes that supply will be restored before they get to the manufacturing phase as several chip samples are cheap despite their temporarily high cost. In some situations, however, chip replacement is the best route to take.
The following is a checklist we use as a design house to tackle the problem of electronics component shortage and improve component supply:
Develop a supply network
Design houses often have a list of renowned chip vendors and manufacturers with whom they can transact directly. With their help, they can find essential products for their buyers or expand their exposure to manufacturers if price is not a top priority for them.
If there is a shortage, design for future market conditions
Since the design process requires at least one year, startups and design houses may develop workable solutions with several chip samples. The end of the process should coincide with the end of the chip shortage as well, making chips sufficiently available for manufacturing.
If there is no shortage, foresee it
When preparing to create a new product, a thoughtful step to make after the BA stage would be to choose the chipset for the product at the start of the project. Next is to move to create a purchase order for stocking components for mass production at the start of the development planning. To accomplish this, hire an engineering team with capacities in:
-The array of specs for the project
-Writing the firmware and developing linkable apps or software
Keep in mind that car manufacturers who favor the continuous-flow ordering method are sent to the production line for future component shipment.
The manufacturing of modern vehicles relies on the availability of computer chips, and the auto industry should develop efficient and rigid supply chains. This will enable them to react positively to unforeseen changes in demand and supply while extending their longevity in the business.
How to Deal with Chip Shortage in the Automotive Industry
Automotive industry manufacturers are struggling to get enough chips to build their products—from airbags to navigation systems.This global electronics parts shortage is the result of several factors: pandemic-related work stoppages, increased demand, and broken transportation logistics. As a result, automotive manufacturers worldwide are expected to lose more than $14 billion in revenue in the first quarter of 2022 and approximately $61 billion for the year.
Main Reasons of Chip Shortage in the Industry
Because updating components requires complex internal checks within hardware development to ensure safety and durability, automakers are often slow to do so. Keeping track of and aligning with shifts in the auto market is difficult, and meeting unexpected demand in this sector isn’t as simple as launching another production line and hiring more staff.
At the beginning of the COVID-19 pandemic, car companies assumed that the demand for cars would decrease, so they reduced their semiconductor purchases. At the same time, demand for consumer electronics rose, so semiconductor manufacturers reallocated their production.
However, soon automakers saw that their assumptions were incorrect: car demand increased. So they decided to return to their production volume plans and tried placing chip orders again. But manufacturing lines were already busy with consumer electronics orders, and switching back to automotive components would require going through the lengthy and costly process of parts revalidation. To make it even worse, prices for many components had increased 5% to 10%.
Chip shortages can be a major hurdle for car manufacturers and hardware design companies. For startups and design houses, although they may face similar shortages, it is more easily overcome. Below you will find some useful tips for design houses on how to prepare for this challenge, based on our own experience, and practical advice for automakers to implement at large scale.