Insider look at how Europe's No. 2 chipmaker is racing to help counter shortages

The microchip shortage has cost the automotive industry millions of lost units of production and billions in lost revenue this year. The latest estimates have the problem lingering through the first half of 2022.

To better understand the root cause of this problem -- and why it will linger -- Automotive News Europe last month visited two of STMicroelectronics' fabrication plants, or “fabs" in Agrate, near Milan.

The differences between a typical car assembly plant and STM's chip factories, one in operation and one under construction, are striking.

• A vehicle plant normally works two production shifts, five days a week for a total of 10 shifts. That number can be increased to as many as 21 if the automaker needs to boost production by adding night and weekend shifts.
• STM's plants are, or will once completed, operated 24 hours a day, 365 days a year, leaving little to no flexibility to boost output.
• A new car plant can go from groundbreaking to start of production in two years and reach full capacity in as little as six months.
• That same process at a chip plant takes up to five years.
• While it takes 15 to 30 hours to build a vehicle it takes five months to produce, package and ship a chip to an automaker for installation in a vehicle.

That’s the bad news.

The good news is that the crisis has forced more direct communication between automakers and chipmakers. It has also underlined that the fabs in Europe are capable of providing chips that at least in the midterm can meet the advanced technological demands of cars that will be fully or partially electric and constantly connected. Chipmakers have accelerated their pace of investment over the last few years to meet these goals.

Huge investment

STM is investing up to $3 billion into its new fab near Milan. The French-Italian semiconductor maker, which is Europe’s second-largest after Germany’s Infineon, believes that a key advantage of its new so-called 12-inch fab (the other is an 8-inch fab) is that the company can increase the number of chips per wafer by a factor of 2.4 while improving process productivity (see sidebar, right).

STM's current 8-inch fab's output includes chips for automotive applications such as airbags, navigation system and keyless entry. The new fab's output will include chips for analog and radio-frequency (RF) products used vehicles with the hopes of relieving backlogs created by the shortage.

The new fab will be able to make circuits with node dimensions comparable to with the current 8-inch fab, and far from the miniaturization reached by the current industry leaders; the company decided midway through the last decade that it would quit the race to produce in-house chips with even higher circuit miniaturization.

The main reason behind the decision was the huge upfront cost of the investment: up to 18 billion euros, according to consultancy Kearney, for a single fab that can produce 35,000 wafers a month at 5 nanometers. The distance between transistors on a die (or on a single device) is expressed in nanometers and depends on the lithography equipment and processes.

As a result, fewer than a dozen plants with that capability in operation in places such as the U.S., Israel, South Korea and Taiwan, according to consultancy Kearney.

Those locations have fabs that are producing at 10 nanometer nodes or less. A nanometer equals one billionth of a meter and the lower the number is the better because less distance between transistors of a central processing unit improves efficiency.

Miniaturization and efficiency are key factors for consumer electronics and personal computer industries, while automotive customers value factors such as longevity and ability to operate under extreme conditions. That’s partly why Europe, where the share of chip production for automotive is higher than in other parts of the world, has no fabs below 10 nanometer.

STM’s most advanced plant is a 28-nanometer fab in Crolles, France, where chips are manufactured for a number of automotive applications including vision processors for Intel subsidiary Mobileye and next-generation microcontrollers. STM also designs and sells a number of products with geometries as small as nanometers. These solution are manufactured for STM mby third-party foundries in Asia.

While STM’s automotive customers are not asking it to make fabs with nanometer capabilities of 10 or below, demand exists for that level of expertise, and Europe doesn’t have it.

“Today’s applications built on mature node semiconductors will over time move to more advanced nodes purely because of the advantages that a more advanced node technology will have for any semiconductor application; for example, reduced power consumption, higher density, etc.,” Kearney said in a report.

Europe produced just 8 percent of the world’s semiconductors in 2019, down from 22 percent in 1998, industry association Digital Europe said, blaming the decline on the willingness of other regions of the world to introduce “a more favorable business climate.”

According to Kearney, the potential long-term cost of a 5 nanometer wafer fab investment in Europe is 33 percent higher than in South Korea and 43 percent higher than in Taiwan. It estimated that 80 percent of the gap is due to the generous incentives those governments grant.

In September the EU Commission stepped in with its proposal of a “Chips Act” to promote research and local production, with the target to bring the EU share back to 20 percent. One possible hurdle is that EU competition rules forbid state aid be used to defer costs during the chip production phase. Only research and pilot production incentives are allowed.

A directive is expected to be formally proposed in 2022, but any change of the rules will be subject to approval by all the 27 EU countries.

Alternative solutions

In September, Marco Monti, who is head of STM’s automotive group, told ANE that growing number of automakers and Tier 1 suppliers are re-engineering automotive chips, such as electronic control units, to get more flexible solutions that can also be produced in 12-inch fabs.

In addition, automakers in search of alternative solutions to the chip crisis have started buying computer chips directly from manufacturers.

That’s a big change because it wasn’t long ago that chipmakers were considered Tier 2 suppliers that provided their products to Tier 1s such as Robert Bosch or Valeo to build into larger components for automakers.

Daimler purchasing manager Markus Schäfer said Mercedes-Benz’s parent talks directly with its chip suppliers, including wafer producers in Taiwan.

Volkswagen Group CEO Herbert Diess says his company now has "strategic partnerships" with manufacturers in Asia.

STM’s Chery  confirmed to ANE that automakers now increasingly tell chipmakers what to produce and what to deliver to Tier 1 suppliers.

It’s too early to predict how the EU initiatives will play out. What is clear is that automakers have been able to address some key challenges related to chips this year, but they will still have to cope with this shortage into next year.

7 things to know about semiconductors

• The core of chip production happens in highly automated plants, sometimes called  fabs, that take silicon wafers and transform them into thousands of semiconductor chips.
• Finished chips are tested and “packaged” at lower-tech plants, where many employees perform more manual tasks. Those plants are often located in developing countries.
• The dimensions of each chip range from 1 sq mm to 4 sq cm.

• The diameter of wafers ranges from 150 to 300 mm (6 to 12 inches)
• The miniaturization of the single features embedded on a chip has reached a scale of a few nanometers. One nanometer is one-millionth of a millimeter (a human hair has a diameter of one-tenth of a millimeter).
• The cost of each chip ranges from 30 cents to 50 dollars or more. Most automotive application are at the lower end, costing less than $1.
• The number of chips in a car varies from 1,000 to 4,000. Premium models have more chips, and the number grows with each additional option, especially advanced driver assistance systems.