Thanks to impressive tax incentives and President Biden's desire to boost the American manufacturing industry, TSMC may consider up to six microchip fabrication plants (fabs) in Arizona.
The adoption of remote outsourced production of microchips in 1990 changed the supply and demand landscape as we knew it last year. The situation continued into this year. Semiconductor chip producers predict it could be two years before productivity meets demand.
Microchips for automobiles and electronics, like phones and washing machines, became scarce towards the end of the year.
America based its choice to outsource the manufacturing of microchips to Asia for two reasons. One, because it didn’t have the skills available, and two, Asia could produce cheaper chips.
America in 1990 produced 37% of microchips. By 2020, outsourced chip manufacturing had reduced US production to 12%. President Biden realised this caused a major problem for the economy.
What happened with chips for cars?
COVID-19 happened. The down turn in sales of cars during lockdown periods, the first especially, caused people stuck at home to gobble up just about anything electronic they could get their hands on. I’m sure you know because you sat at home Zooming on your new work laptop. Your kids begged for a new PlayStation or X-Box and I’ll wager many upgraded their home entertainment systems.
Chip producers changed their production from chips for cars to chips for electronics. A wise move because big hitters like Microsoft and Sony launched their fresh generation of video game consoles. Nvidia, AMD and Intel also went live with new mobile GPU (graphics processing unit) and CPU (central processing units) designed to speed up graphics applications, user interfaces, and 3D content on your smartphone, tablet, wearables, and Intert of Things (IoT) devices.
All the electronic launches in 2020 competed for the same pot. In the fall, circumstances conspired against (or should that be for?) car manufacturers when demand for new cars rose. Dealerships welcomed customers with exciting deals and the year finished on a high for all.
Remember all those chips being made for electronic gadgets?
Well, Volkswagen was blaming the shortage of chips for their cars on suppliers back in December. Automotive chip suppliers started ramping up production but they couldn’t meet the tremendous demand.
With used cars’ prices going up because cars fresh out of the factory were few, customers waited for the new cars rather than buy an expensive old one.
This year, car manufacturers in the US have been struggling since the crazy weather in Texas in February halted production for over a month.
Out of the frying pan into the fire
In March 2021, the Japanese company Renesas Electronics ceased production. A massive fire put them back two months. Add to that the two months it takes to produce chips and there won’t be a decent supply of new cars until September or October.
The future is not looking bright for car manufacturers and dealerships. A speculative 250,000 lost sales for Honda and Nissan. Infineon, a German semiconductor manufacturer.
“There are roughly 1.5 million cars not being built in the first quarter, and 1 million vehicles not being built in the second,” Chief Marketing Officer Helmut Gassel.
If you were banking on using your tax refund to buy a car, this year car dealerships likely won’t have many cars for you to choose from, if any.
When shoppers, thanks to staying safe indoors, have excess cash to spend on big-ticket items and demand outweighs supply, the automotive industry weeps into their empty coffers.
What is the President’s plan for chips?
Biden realised the lack of chips created national and economic security problems. A Whitehouse summit in April to examine the situation included CEOs from General Motors, Ford, Google, Intel, HP and Dell. Despite Intel’s statement that they hope the U.S. could increase its semiconductor production to one-third of all chips sold in the US the figure still doesn’t match output in 1990.
Intel will build two additional fabs, to join its existing one in Arizona. Taiwan Semiconductor Manufacturing Company Limited (TSMC) will also build a fab in Arizona, possibly up to six. And a fourth one in Texas built by Samsung to be confirmed.
Fabs don’t come cheap. Each will cost around $20 billion and take about five years to complete. Whether the skill sets will rise to supply enough workers for the fabs, we’ll have to wait and see. For its fab plant going live in 2024, TSMC has already employed 250 technical specialists and engineers and sent 100 of them to Taiwan to train.
Unresolved
Electronics consumers will also have to wait until 2024 for TSMC and Intel.
Chip production for electronics, while heading in the right direction with new American fabs planned, Daniel Goncalves, research manager for Western Europe at International Data Corporation (IDC) says.
“Providing components isn’t the problem. The problem is that demand is much stronger than it used to be, so the pace of production is much slower than it should be. This is why it is very hard to predict when this will end.”
In short, demand for electronics needs to drop for supply to catch up!
For the automobile industry, TSMC expects to be caught up to the minimum requirement by the end of June. Good news for automobile manufacturers, dealerships, and folks eager to get their hands on a brand new SUV.
Sources
Chip shortage explained: Low inventory, skyrocketing used car prices and no end in sight
The Global Chip Shortage Is America’s Wakeup Call
TSMC says can catch up with auto chip demand by end June -CBS