Chip Shortage Will Continue to Disrupt Auto Production in China, Industry Warns

Semiconductor chip shortage issues will continue to disrupt China’s production of automobiles in the coming months, the China Association of Automobile Manufacturers said in a Wednesday post.

The shortage problems emerged last month, leading to a drop in vehicle production for a number of carmakers, including SAIC-Volkswagen Automotive Co. Ltd. and Guangqi Honda Automobile Co. Ltd.

Vehicle output at SAIC-Volkswagen slumped by nearly a quarter in December to 125,800 units compared to November, while Guangqi Honda’s production dipped 1.3% month-on-month in the same period. GAC Toyota suspended a third production line in the southern city of Guangzhou due to chip supply issues.

The lingering chip supply crunch could lead to a 5% year-on-year decline in production volumes for some carmakers in the first quarter this year, said UBS auto analyst Gong Min.

The global supply of chips tightened late last year as the Covid-19 pandemic disrupted production and halted expansion projects at the same time as downstream demand rose.

A report by Everbright Securities Co. Ltd. last year indicated the market for communication semiconductors, which make up 35% of the overall semiconductor market, was likely to expand by 4% year-on-year to a value of $150.2 billion by the end of 2020.

It said customers like Huawei Technologies Co. Ltd. that rushed to stock up on semiconductor chips propped up demand throughout the year.

The report added the automotive semiconductor market, accounting for one-tenth of the overall industry’s size, was expected to show 10% growth in value to $43.8 billion.

But production capacity, especially that of 8-inch silicon wafers, hadn’t managed to keep pace with the growth in demand.

China’s Semiconductor Manufacturing International Corp. and Hua Hong Semiconductor Ltd. could together produce 1.6 million more of the wafer products when expansion projects get off the ground, the report said.

But that would only equate to one-tenth of the current capacity of Taiwan Semiconductor Manufacturing Co. Ltd., which had no expansion plans for these products last year.

Contact reporter Lu Yutong (yutonglu@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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