Dr Wilfried G Aulbur, Senior Partner, Roland Berger - The automotive JIT does not correlate with the long semiconductor manufacturing cycles
The current automotive chip crisis has several root causes. Next-gen E/E architectures with increasing processor performance for ADAS features, connectivity and SW defined functionality, as well as the electrification of vehicles, are driving demand. The strong COVID recovery has resulted in a demand spike in the automotive industry as well as in other competing industries such as consumer electronics, crypto-currency mining, power electronics for clean energy applications, etc. The ‘hardball’ tactics of some OEMs during the onset of the COVID crisis that reduced volumes drastically led to a reallocation of supplier capacity in other industries, which is not easily reversible. Combined with long lead times for fab production facilities, this leads to a situation where the semiconductor shortage will impact production beyond 2021. The automotive just-in-time does not correlate with the long semiconductor manufacturing cycles, and capacity will remain restricted in the medium-term. At the same time, the supply base for leading nodes will rely on very few (2+) suppliers with large geographic and political risks.
In the near term, automotive OEMs must avoid line stoppages and prioritise programme management as well as supply chain transparency. In the mid- and long-term, advanced commodity and supplier management techniques must limit supply chain risks. Long-term, multiple levers such as strategic/equity relations with SemCos, design standardisation and consumerisation for non-mission-critical domains are relevant levers for OEMs and tier 1s.
Ashim Sharma, Partner & Group Head, Nomura Research Institute - India can start with ATMP and eventually enter speciality fabs
Semiconductor chips are mostly procured on a just-in-time basis for automakers. Due to the lockdown and low demand from automakers, chip manufacturers focused on the growing electronics industry. This led to a supply crunch of chips for automakers, as the existing inventories got exhausted with the revival in vehicle demand. Due to the shortage, automakers will have to delay the new model launches, increase the delivery time of existing products and reduce the features from the models that require chips not present in inventory. In the future, automakers could diversify their suppliers’ geographies to avoid a freeze on manufacturing plans.
As chip manufacturing is an advanced technology, India will be starting with a lag. India can start with Assembly, Testing, Marking and Packaging (ATMP), which generates higher employments and requires less investment. Eventually, we can aim to enter the speciality fabs, as it will be easier to catch up with other countries. The Ministry of Electronics and IT is also expected to develop policies for increasing semiconductor manufacturing in the country.
P Manikandan, CTO, Hero Lectro E-cycles - Plan ahead with the greatest amount of foresight and inventory forecast
The chip shortage has a significant impact on the timelines, lead time and cost. The impact cascades through the ecosystem, leading to delay in the production schedule and the inability to meet business targets. As Indian automotive manufacturers are dependent on imports of either all the electronic components or the microcontroller & semiconductor chips, the only option is to plan ahead with the greatest amount of foresight and inventory forecast. This leads to taking business risks related to the actual content of such semiconductors in the vehicle.
India has missed the bus and is trailing behind semiconductor manufacturing nations. The need of the hour is to establish a strong manufacturing base in India for semiconductor, electronics and digital systems. With the evolving digital front and an emerging Asian market, we need to create a strategic position in this segment. Along with subsidising capital investments in semiconductor manufacturing, we need to focus on the development part, build an ecosystem, promote common facilities and bridge the demand & supply systems.
Rajeev Khushu, Chairperson of the Board of Directors & Executive Committee, IESA - The semiconductor industry thrives on diversity and interdependence
Due to the chip shortage, the growth of cars and high-end bikes will get impacted, although both segments are poised to grow this year. With the announcements by many silicon players in the last several quarters, we will see the supply-demand gap reduce not only because of the commissioning of new fabs but also due to the increased productivity and efficiency of the existing fabs.
We are trying to get allocations of parts that are under high lead times as a short-term solution until the supply-demand gap evens out. There will be challenges for the next four to six quarters, but the industry will find out innovative ways to tide over the problems. The semiconductor industry thrives on diversity and interdependence. No country in this world can claim to be completely self-reliant or self-dependent in this space. There will be some sectors of national importance where one will see activity to be less dependent. But overall, countries will need each other to thrive and succeed, and everyone needs to focus on their strengths.
Ashutosh Verma, Founder, Exalta India - The innovation that comes out of this crisis will be to reckon with
The many waves, mutations and lockdowns caused scarcity of semiconductor chips – an essential for sophisticated electronic prowess in cars and bikes. In addition, the shortage brought delays and complex engineering issues to either replace or substitute the semiconductor chips. It has had a cascading effect causing delays due to the slow supply. The automotive industry needs to prepare for this shortage and accept a slowdown. They will experience losses and delays because the shortage is not under the control of anyone but the parts manufacturers, who also face troubles due to this pandemic.
Indian manufacturers have scope for growth right now, no doubt. It is a good opportunity for small-scale manufacturers and engineering start-ups to innovate and produce products at par with the chip manufacturing countries. The possibility of finding something more locally designed and produced does also mean that the automotive industry will need to adapt its vehicle design with these units. The innovation that comes out of this crisis will be one to reckon with if all kinds work right.
Dr Amitabh Saran (PhD), CEO, Altigreen Propulsion Labs - For real Aatmanirbharta, increase the overall attractiveness of the Indian market
A Susquehanna Financial Group report pointed out the chip lead time – the time gap between a chip’s order and its delivery – of up to 17 weeks in April 2021. This resulted in several carmakers & high-end bikemakers to lower their inventory holdings and depend upon the supply chain to dictate the production pace. In comparison to smaller companies relying on retailers, the demand-supply gap is vast for bigger manufacturers. A well-considered design release programme coupled with long-term supply contracts can go a long way in alleviating such supply chain issues.
Presently, India offers no strategic or tactical advantages to any company considering a chip manufacturing facility. Because of the multi-billion-dollar cost and small domestic demand, the only way such a plant can come in India is if the government decides to rejuvenate its efforts in a joint venture with major worldwide manufacturers. Besides, just a ‘fab plant’ will not bring about complete Aatmanirbharta in this field. Perhaps, the best way to attain real Aatmanirbharta is by increasing the overall attractiveness of the Indian market so that major manufacturers make a beeline to sell here.