Bosch Says Automotive Semiconductor Supply Chains Are Broken

German technology and engineering group Bosch, which is the world’s largest auto parts supplier, says the automotive industry’s semiconductor supply chains are no longer fit for purpose amid global shortages of fleas raged.

Bosch board member Harald Kroeger told CNBC’s Annette Weisbach in an exclusive interview Monday that supply chains have warped over the past year as demand for chips in everything from cars to PlayStation 5 and electric toothbrushes, has increased worldwide.

Coinciding with the increase in demand, several key semiconductor manufacturing sites were forced to shut down production, Kroeger said.

In February, a winter storm in Texas caused power outages at NXP Semiconductors, which is a major supplier of automotive chips and cellphones. In March, a fire broke out at a semiconductor factory in Japan operated by Renesas, one of the automotive industry’s largest chip suppliers. In August, factories in Malaysia were abandoned as nationwide shutdowns were introduced to reduce the spread of the coronavirus.

Volkswagen and BMW cut production as they struggled to get the chips they needed to build their cars. These semiconductor companies and suppliers should now seek to understand how the chip supply chain can be improved, Kroeger said.

“As a team, we need to sit down together and ask, for the future operating system, if there’s a better way to have longer delivery times,” he said. “I think what we need is more stock on some parts [of the supply chain] because some of these semiconductors need six months to be produced. You cannot run on a system [where] every two weeks you receive an order. It does not work.”

Semiconductor supply chain issues have been quietly handled by the automotive industry in the past, but now is the time for a change, according to Kroeger, who believes demand will only increase with the rise of electric vehicles and autonomous vehicles.

“Every car that gets smarter needs more semiconductors,” Kroeger said.

Electric cars need very powerful and efficient semiconductors to get the most out of every kilowatt-hour of battery power, he added.

UBS analyst Francois-Xavier Bouvignies told CNBC last week that cars with internal combustion engines typically use about $80 worth of semiconductors in the powertrain, but electric vehicles use about $550. dollars.

New chip plant

Bosch has built a new 1 billion euro ($1.2 billion) semiconductor factory in Dresden – the capital of the German state of Saxony and one of Europe’s largest semiconductor clusters. Europe – for the past two years and production started last month.

“The fact that we started building this plant a few years ago shows that we expected a dramatic increase in demand,” Kroeger said.

Other chip heavyweights, including Intel and TSMC plan to create new factories in the next few years as part of an effort to increase production.

Kroeger said he expects the chip shortage to last “through 2022,” adding that he hopes demand remains stable. “We need to increase supplies so we can meet this demand,” he said.

In search of sovereignty

German President Frank-Walter Steinmeier told CNBC this week that the plant comes at a crucial time for the industry, adding that Germany and Europe are still far from achieving digital sovereignty in semi-production. -drivers.

“It is important and right that Bosch has chosen to invest here at a time when we are seeing supply shortages in international markets,” he said during a tour of the new Bosch factory.

“I think the current situation gives us an extra push to be stronger in this area,” added Steinmeier.

The number of people working in the semiconductor industry in Dresden has grown from 45,000 to 70,000 over the past decade, according to Frank Bosenberg, chief executive of technology network Silicon Saxony.

“We expect further growth through 2030 of up to 100,000,” Bosenberg told CNBC.

Catch up with Asia

The vast majority of the world’s chips are produced in Asia, with TSMC being the world’s largest chip producer. Europe represents only a fraction of the world’s semiconductor production.

“Europe has 20% demand and less than 10% production right now,” Bosenberg said.

He thinks Europe should increase semiconductor production, but he noted that it is a global industry and no country is even close to being self-sufficient.

Dutch semiconductor equipment vendor ASML is the only company in the world capable of building the machines that TSMC needs to manufacture the most advanced chips, which are used by Apple.

ASML is a “major asset within the industry,” Bosenberg said.

Clarification: This article has been updated to clarify that ASML manufactures the machines that TSMC uses to produce the most advanced chips in the world.