Kelvin Pang, a Singaporean working from a small office in China, is willing to accept $23 million to ensure that China’s chip shortage doesn’t worsen. The microcontrollers are chips that regulate many operations. This includes both the charging and power system of electric cars, as well as the transmissions or engines of automobiles. Pang purchased 62,000 microcontrollers for $23.80 each from a German buyer. Pang now wants them to be sold to Shenzhen’s automobile makers for $375 each.
He claimed that he rejected offers of $100 per piece and $6.2 million for the whole bundle. It is stored in a Hong Kong warehouse and is small enough to fit into your car’s trunk. He was 58 years of age and didn’t disclose the cost of the microcontrollers (MCUs). His business connects Chinese buyers to sellers with surplus electronic inventory that could be recycled. Two years ago, the global chip crisis, which was caused by supply disruptions and surge demand, transformed this business from one of low volume and low margin to one that can offer lucrative deals. Although there are still delays in placing orders for automotive chips, brokers such as Pang and others are now focusing their attention on China as the epicentre of a crisis that is gradually being overcome by the rest. According to Reuters, new orders for automotive chips from the five largest manufacturers have a typical global lead time of about a year. To address the shortage, major automakers like General Motors Co. and Ford Motor Co. entered into direct negotiations with chipmakers. They raised part prices and bought more inventory. Interviews with more than 20 industry participants, including brokers, manufacturers, suppliers, and CATARC experts, a government-affiliated auto research group in China, paint a less hopeful image for China. China is the world’s largest automaker and almost all its production comes from chips made in America, Europe, or Taiwan. Supply constraints have been exacerbated by the end of Shanghai’s zero COVID shutdown. China Automotive Technology and Research Centre assert that China’s shortage is worse than anywhere else in China and could hamper EV development. According to the report, a new Chinese chip-making industry will not be able to meet demand in the next two- to three years. Pang predicts that China will continue to face serious shortages of supply through 2023. It would be dangerous to continue in that state, he believes.
Forecasts “not possible”
Each vehicle, electric or conventional, has thousands to thousands of semiconductor-type computer chips. These chips manage everything, from navigation and entertainment systems to automatic emergency brakes and airbag deployment. The June poll included chips from Infineon and Texas Instruments as well as NXP. This report gives an overview of the global shortfall but does not break it down by region. It also shows that new orders placed through distributors often get delayed for an average of 49 weeks, or even into 2023. The average lead time is 52 weeks. They can vary between 6 weeks and 198 weeks. Infineon, a German chipmaker said to Reuters it has been investing in manufacturing facilities all over the world and “rigorously growing its production capabilities.” There may be a shortage in chips made by foundries up to 2023. Infineon said that it was difficult to assess the extent of the current shortage at this time, given the changing geopolitical and macroeconomic environments. United Microelectronics Corp. is a Taiwanese chipmaker that stated to Reuters it was able to shift some capacity to automotive chips due to decreased demand from other markets. The corporation stated that it is still difficult to meet client demand.
TrendForce analyst Galen Tseng told Reuters that current auto suppliers only receive around 80 PMIC chip – which regulates the voltage from the battery up to over 100 applications in an average vehicle – if they required 100. Due to the poor supply situation in China and better prospects for global carmakers, chip supplies are critical. Volkswagen stated in June that the chip shortage will improve in the second half. Chairman of Chinese EV manufacturer Nio William Li stated last month that it was hard to predict when certain chips would be in short supply. Nio has updated its “risky” list to ensure that it doesn’t run out of any of the 1,000 chips needed to make EVs. Xpeng Motors (a Chinese EV manufacturer) appealed in May for chips. A video online featured a Pokemon toy. It was also sold out in China. The duck-like bobbing character waved the two signs “urgently looking” and “chips”. The video was posted by He Xiaopeng (CEO of Xpeng Motors) on Weibo. He said that his company had difficulty getting “cheap chips” to build cars.
Shenzhen is accessible via all roads
Two people who are familiar with the trade at a Chinese EV manufacturer and an auto supplier claim that automakers have come to Shenzhen in search of solutions. This is China’s biggest chip trading centre and the “grey market,” which brokered legal supplies but was not authorized to do so by the original manufacturer. Grey markets are a place where chips may be recycled, mislabelled, or improperly handled. Masamune Yamaji, Gartner’s research director, stated that brokers can pose a risk and that their costs could be ten- to twentyfold more. Many chip buyers depend on brokers to satisfy their needs, particularly small clients in the automotive or industrial electronics industries. Pang stated that Shenzhen’s brokers were often newcomers who were attracted by rising prices but had no knowledge of the technology they were selling and buying. Only part numbers are available. I want to know what this means for your car. They don’t know what they are doing. Analysts believe there aren’t enough brokers to meet the demand, despite it being difficult to estimate the number of brokers. Ondrej Burkacky at McKinsey is a senior associate. He said that it’s not like all the chips are on the market, and you only need to get them there. Analysts and traders warned that Shenzhen’s unsold semiconductor stocks could cause an asset bubble. Pang stated that this was not possible.
Chinese self-sufficiency
China is looking to reduce its dependence on imported chips as its advanced chip design, manufacture and manufacturing still lag behind its counterparts abroad. It won’t be easy, especially considering the stringent specifications for automotive-grade semiconductors. Li Xudong is a senior manager at CATARC. MCUs account for 30% of total chip costs in a car, but they are also the most difficult category in which China can achieve self-sufficiency. Li stated that domestic players have only entered the lower market with chips for air conditioning and seat controls. Huang Yonghe (head engineer at CATARC) stated in May that “I don’t believe the problem can be solved in two or three years.” We are dependent on foreign countries for 95 % of wafers. Li of CATARC says that a domestic alternative has emerged in the form of Chinese EV manufacturer BYD. It has started to produce IGBT transistor chip designs. Victor Shih, a professor of political science at the University of California in San Diego, said that China has always considered its inability to completely rely on chip manufacturing as a security threat. China may eventually create a strong local sector, Shih said. “It led to a lot of waste and failure but it also produced two or 3 giants that now dominate the world market.”
