Jolted by the global chip shortage, auto makers are taking steps to gain greater access to chips, including by signing long-term purchase agreements with their suppliers and even dealing directly with foundries deeper in the supply chain.
GlobalFoundries, one of the world’s largest contract chip vendors and Ford’s semiconductor partner since last month, said it has hammered out the latest deal with BMW and Inova Semiconductors. The companies said the new "supply assurance" agreement guarantees BMW “several million” chips each year.
The chips covered by the deal will be used in ISELED lighting technology co-developed by BMW and based on chips from Inova, and it will be deployed for the first time in BMW’s iX electric car and other models in the future. Inova is a fabless semiconductor firm in Munich, Germany, where BMW has its headquarters. The company sells a wide range of chips, including LED driver ICs at the heart of ISELED systems.
Said Andreas Wendt, who is responsible for purchasing and supplier relationships at BMW: "This improves planning reliability and transparency around the volumes needed for everyone involved and secures our needs for the long term."
The global chip shortage has slammed into the sector this year, forcing Ford, GM, and virtually every major car manufacturer to pause production at some point. Lead times for many of the chips used in vehicles are rising to record levels—more than a year in many cases—frustrating car companies trying to replenish their inventories. Moreover, industry insiders say prices for microcontrollers (MCUs) and other chips are also up.
The ongoing chip crisis is largely focused on microcontrollers (MCUs) and other special-purpose chips such as power management ICs and driver ICs manufactured on mature technology nodes such as 28-nm and above. Additionally, these kinds of chips are manufactured on aging equipment that uses 200-mm silicon wafers instead of the larger 300-mm format.
“The fact that the automotive industry has been conservative in qualifying older devices on larger wafer sizes has also hurt them,” said Gaurav Gupta, a semiconductor analyst at Gartner, where he focuses on the global electronics supply chain.
The sprawling supply chain used by the auto sector has to coordinate the delivery of up to 30,000 parts and up to 1,500 different chips from hundreds of suppliers to assemble even one vehicle. For the supply chain to work, all the components required to finish a vehicle have to get where and when they are needed. Even a slight delay in delivering a single component can make it impossible to assemble the final vehicle.
It generally takes three to six months to manufacture, package, test, and then deliver a semiconductor to a client. Then, add another six months from the shipment of a component to finish the assembly of a vehicle.
“In most cases, chipmakers are traditionally Tier 3 or Tier 4 suppliers to automakers, which means it usually takes a while until they adapt to the changes affecting automotive market demand," Gupta said.
Auto executives have been scrambling for months to get a better handle on their chip supplies, a critical part of a sprawling global supply chain that they have had limited visibility into. Executives are also trying to get closer to their chip suppliers, driven both by the global component shortage and the premise that cars will require more chips as the sector invests more in electric vehicles and autonomous driving.
Last month, Ford said it plans to work with GlobalFoundries to boost supplies of chips used in Ford’s cars. The deal also opens the door to co-research and development into several different types of chips, such as components used in in-vehicle networking, autonomous driving, and battery management (BMS) systems.
GM announced a long-term purchase agreement with Wolfspeed for the silicon carbide chips that sit at the heart of the integrated power electronics in its Ultium electric-vehicle platform.
Semiconductor firms have started favoring customers that share long-term forecasts about the chips they will need in the future. That helps companies with capacity planning and when it comes to reserving capacity ahead of time at their foundries.
“With this agreement directly with an OEM, we are certainly entering new territory as a semiconductor company,” Inova CEO and founder Robert Kraus said in a statement. "That is a real win-win situation."
The agreement with GlobalFoundries is intended to guarantee long-term chip supplies for BMW, which has been hurt by the same procurement challenges that have plagued the sector for months. BMW has said the iX should go on sale in early 2022.
Auto chips are high on the priority list for GlobalFoundries, which last year moved its headquarters to the site of its most advanced fab in upstate New York. “GF is committed to building stronger relationships with the automotive industry to deliver innovation and address the growing demand for feature-rich chips,” said Mike Hogan, senior vice president of the industrial and automotive business unit at GlobalFoundries.
GlobalFoundries has previously said that it would at least double its output of chips to the automotive sector by the end of 2021.