Trump’s tech war in China backfires on automakers when the chips run out

(Reuters) – Automakers around the world are shutting down assembly lines due to a global semiconductor shortage that has in some cases been exacerbated by Trump administration actions against major Chinese chip factories, officials said. sector.

The shortage, which took much of the industry by surprise and could continue for many months, is now causing Ford Motor Co, Subaru Corp and Toyota Motor Corp to reduce U.S. production.

Car manufacturers interested in other markets include Volkswagen, Nissan Motor Co Ltd and Fiat Chrysler Automobiles. [nL4N2JJ0JF]

Problems arise from a confluence of factors as auto makers compete with the sprawling consumer electronics industry for chip supplies. Consumers stocked up on laptops, game consoles and other electronics during the pandemic, creating limited chip stocks throughout 2020.

They also bought more cars than industry officials expected last spring, cutting supplies further.

In at least one case, the shortage is linked to President Donald Trump’s policies aimed at limiting technology transfers to China.

A car manufacturer has shifted chip manufacturing from China Semiconductor Manufacturing International, or SMIC, which was hit by US government restrictions in December at Taiwan Semiconductor Manufacturing Co in Taiwan, which itself was overbooked, one person familiar with the matter told Reuters.

An automobile supplier confirmed that TSMC was unable to keep up with demand.

“The systemic aspect of the crisis is giving us a headache,” said a supplier executive, who asked not to be identified. “In some cases, we find replacement parts that could make us independent from TSMC, only to find that the alternative the wafer manufacturer has no available capacity. “

TSMC and SMIC did not immediately respond to requests for comment.

In an earnings call with investors on Thursday, TSMC CEO CC Wei said there was a shortage of automotive chips made with “mature technology” and that he is working with customers “to mitigate the impact of the shortage. “.

It only takes the smallest of chips to eliminate production: a Ford plant in Kentucky that idles the Escape SUV due to a shortage of a chip in the vehicle’s brake system, a union official at the plant said.

Ford will also leave its Focus plant in Saarlouis, Germany inactive for a month starting next week due to a shortage of chips.

The situation is unlikely to improve quickly, since all chips, whether they are destined for a laptop or a Lexus, begin life as a silicon wafer that takes about 90 days to make into a chip.

The chip manufacturing industry has always tried to keep up with sudden spikes in demand. Wafer factories cost tens of billions of dollars to build, and expanding their capacity can take up to a year to test and qualify complex tools.

“The long and the short is, the demand has increased by about 50%. And there’s no resource-intensive industry like ours that has 50% capacity lying around, ”said Mike Hogan, senior vice president of chip maker GlobalFoundries and head of its automotive unit.

HUAWEI EFFECT

Limited capacity and soaring demand made it difficult for chip makers to absorb two shocks from the Trump administration.

First, the White House in September banned Huawei Technologies Co Ltd, the Chinese telecommunications giant and one of the leading smartphone manufacturers. from purchase of chips made with American technology. Huawei accumulated chips before the ban to continue building what products it could after it went into effect. And Huawei’s rivals, looking for a chance to grab market share, have started collecting chips, analysts said.

Second, the US government has enacted rules banning SMIC from using some US tools to make chips, a move that prompted at least some of SMIC’s customers to look for a different chip factory due to concerns that production might be halted.

“There is a fear of using a Chinese chip factory if the US wants to put it on an entity list,” said Daniel Goehl, chief business officer of UltraSense Systems, referring to possible further restrictions.

A Department of Commerce spokesperson declined to comment on the implications of SMIC and Huawei’s blacklisting for the automotive industry, but said the top priority was “ensuring that the Export Administration Regulation protects national security, economic security. and US foreign policy interests. “

Analysts said the automotive chip shortage is expected to persist for up to six months. A report from AutoForecast Solutions estimated that the global auto industry had already experienced a volume loss of 202,000 vehicles as of Jan.13.

Executives from automakers and suppliers said they are adapting manufacturing schedules to protect chips used in high-profit vehicles. And companies are looking into chip procurement from more suppliers and increasing inventory levels in the future.

“It’s four-dimensional chess all day,” said an auto official, who asked not to be identified.

Reportage by Ben Klayman in Detroit, Stephen Nellis in San Franicsco and Alexandra Alper in Washington. Editing by Jonathan Weber and Simon Cameron-Moore