Chip shortage to continue through 2022, analyst says

PARIS -- The automotive chip shortage is not likely to ease this year, an expert at consulting firm McKinsey said, despite pledges to boost capacity and a push by automakers and Tier 1 suppliers to commit to longer contracts with semiconductor makers.

“There might be a certain improvement in 2023, but I don't expect any major shifts in 2022,” said Ondrej Burkacky, a senior partner at McKinsey who leads the company’s global semiconductor sector, ahead of the release of a report on the automotive chip market through 2030.

Waiting times for some process nodes is now 20 weeks or more, especially for those 22 to 65 nanometers, McKinsey said in the report, adding that “supply and demand will not be more in balance again until 2023 due to additional production capacities.”

The smaller the process node, the more sophisticated and expensive the chip. Automotive applications are generally 90 nm or larger, but trends such as ADAS and electrification require ever-smaller process nodes.

Burkacky said that about 5 million vehicles planned to be built in 2021 could not be assembled because of the chip shortage, and an additional 10 to 15 million were affected, meaning they were built without certain features or used substitute modules.

Automakers and Tier 1 suppliers have started to make efforts at structurally reforming sourcing, committing to longer lead times for orders of 18 to 24 months, he said, in an effort to compete better for scarce production space at so-called “wafer fabs.” 

“There's still some hesitancy on the semiconductor side, because they want to make sure the commitments are real,” Burkacky said, and on the capacity side they have a different time horizon -- if you commit to building a [wafer] fab now it takes three to four years.”     

Nonetheless, some automakers recorded record margins, as they prioritized production of more expensive and electrified models. 

Stellantis, for example, said the shortage cost 20 percent of planned production -- and recorded a group automotive margin of 11.8 percent. Stellantis CFO Richard Palmer said the shortage peaked in the third quarter of 2021.

Some automotive executives have said the chip shortage – driven largely by increased demand from other sectors such as consumer electronics and computing and data storage that left the auto industry at the back of the line – will ease somewhat in the second half of 2022. 

However, Burkacky said that is unlikely to be the case, because it will take years to increase capacity, either through expanding existing “wafer fabs” or building new ones. 

At the same time, the surge in demand for semiconductors across all sectors that started in 2020 will continue, Burkacky said. In value, an industry that now generates $600 billion in revenue will grow to $1 trillion in 2030.  

The auto industry, which now makes up 8 percent of the semiconductor market by value, will be the fastest-growing area, with an annual growth of 13 to 15 percent until 2030, he said -- and will have 14 percent of the market by then.

The content per vehicle for automakers will increase to $1,300 in 2030 from $600 today, Burkacky said.

Another potential complication is the war in Ukraine, which is responsible for about 50 percent of the production of neon gas, used in the etching process for semiconductors. 

Chipmakers have found new sources for neon after the 2014 annexation of Crimea by Russia, Burkacky said. At the time, 80 percent of neon gas production was based in Ukraine.

“It's yet another example of supply chain diversification not being fully done,” Burcacky said, adding that there won’t be an immediate effect on chip prices because neon is fairly far down the value chain. “Still,” he said, “it's a topic that needs to be taken care of.”