Now it's chip makers' turn to dictate terms to car manufacturers

The shortages of computer chips that forced global car makers to scrap production plans for millions of cars over the past two years are easing — at a new and permanent cost to the car companies.

What had been “war room operations” to manage chip shortages are becoming embedded features of vehicle development, say executives in both industries. That has shifted the risks and some of the costs to car makers.

Newly created teams at the likes of General Motors, Volkswagen and Ford Motor are negotiating directly with chip makers.

Car manufacturers like Nissan Motor and others are accepting longer order commitments and higher inventories. Key suppliers including Robert Bosch and Denso are investing in chip production. GM and Stellantis have said they will work with chip designers to design components.

Taken together, the changes represent a fundamental shift for the car industry: higher costs, more hands-on work in chip development and more capital commitment in exchange for better visibility in their chip supplies, executives and analysts say.

It is a U-turn for car makers who had previously relied on suppliers — or their suppliers — to source semiconductors.

The costly changes are coming together just as the car industry appears to be moving past the worst of an even more costly crisis that by one estimate has cut 13 million vehicles from global production since the start of 2021.

C C Wei, chief executive of the world’s biggest chip maker, Taiwan Semiconductor Manufacturing, said he had never had a car industry executive call him — until the shortage was desperate.

“In the past two years, they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently.

Thomas Caulfield, GlobalFoundries chief executive, said the car industry understands it can no longer leave the building of multibillion-dollar chip factories to chip makers.

Ford has announced it will work with GlobalFoundries to secure its supply of chips. Mike Hogan, who heads GlobalFoundries’ automotive business, said more deals like that are in the pipeline with other car makers.

Working closely with car makers and their suppliers has brought semiconductor manufacturer onsemi $4 billion in long-term agreements for power management chips made from silicon carbide, a new material gaining popularity, said chief executive Hassane El-Khoury.

Chief executives of Japan’s Renesas Electronics and Dutch NXP Semiconductors have both said they are co-locating engineers to help car makers design a new architecture where one computer would centrally control all functions.

“They have woken up,” said NXP chief executive Kurt Sievers. “They have understood what it takes. They try to find the right talent. It’s a big shift.”

The average semiconductor content per vehicle will exceed $1,000 by 2026, doubling from the first year of the Covid-19 pandemic, according to Gartner.

“We have understood that we are a part of the semiconductor industry,” said Volkswagen Group’s Berthold Hellenthal, a senior manager for semiconductor management.

“We have now people dedicated just to strategic semiconductor management.”

Securing — and keeping — chip engineers will be a challenge for car makers, which will have to compete against the likes of Alphabet's Google, Amazon.com and Apple, said Evangelos Simoudis, a Silicon Valley venture capital investor and adviser who works with both established car makers and start-ups.

“I think that that would lead to acquisitions,” he said.