For AmCham Taiwan

An unexpected surge in demand left car manufacturers in some major markets scrambling to make up for a shortage of automotive chips, which are produced mostly in Taiwan. Now governments are exploring how to reduce dependence on the island’s chipmakers.

Taiwan’s key foreign policy catchphrase “Taiwan can help” has become a lot more relevant lately, especially regarding the global automobile industry. Top officials and businesses from the U.S., Europe, and Japan have called on Taiwan’s government to aid with easing a shortage of semiconductors for motor vehicles. The chips facilitate a wide range of functions, including motor management and assisted driving.

This issue has raised concerns among leaders and businesses in these countries that the auto industry may have become overly reliant on Taiwanese chipmakers – especially the Taiwan Semiconductor Manufacturing Co. (TSMC). The notion gained particular attention in Germany when the country’s economics minister, Peter Altmaier, in late January made the unusual move of sending a letter to his Taiwanese counterpart, Wang Mei-hua. In the letter, Altmaier asked Wang  to push TSMC to ramp up semiconductor production to meet demand from German automakers.

The current crisis has been a long time coming. Decades of breakneck globalization have led to a situation in which automotive semiconductors are mainly developed by European companies such as NXP, STM, and Infineon and partly manufactured in Asia – mostly by TSMC. Meanwhile, Chinese foundries are increasingly being pushed out of the global supply chain as a result of the recently departed Trump administration’s moves to restrict China’s high-tech sector.

An additional, more recent factor in creating the current shortage is that automakers in the U.S., Europe, and Japan, anticipating lower consumer demand for cars last year, drastically reduced their orders for chips. In response, semiconductor manufacturers began work on fulfilling the high competing demand from makers of consumer electronics, as individuals, businesses, and governments across the world were forced to abruptly shift to remote work, schooling, and entertainment modes.

“After [Minister of Economic Affairs] Wang received Altmaier’s letter, she called a meeting of Taiwanese stakeholders, including TSMC, and the general feeling was one of perplexity,” says an industry professional who wishes to remain anonymous. “No one knew exactly what semiconductors were needed by which automakers, since TSMC’s business partners are not Volkswagen and Daimler but their suppliers, such as Bosch and Continental.”

The industry professional says that the situation became more complicated when, following a virtual meeting between American and Taiwanese semiconductor firms and government officials in early February, the U.S. side produced a statement thanking Taiwan’s chipmakers for agreeing to prioritize auto chips in order to address the shortage. That seemed to indicate that U.S. car companies would be given preference over those from Europe or Japan, he says.

Continue reading: https://topics.amcham.com.tw/2021/04/automakers-reliance-on-taiwan-chips-sparks-discussion/