Automotive chip drought alters OEM/supplier balance of power

By Junko Yoshida for the Ojo & Yoshida Report – The automotive chip shortage has put semiconductor suppliers in the driver’s seat — at least for now. But automakers are wising up. They are rethinking relationships with semiconductor suppliers, while redrawing their next-generation vehicle architectures.

What’s at stake?

With last year’s chip shortage expected to linger well into 2022, any quick fix is fantasy. Automotive OEMs’ dramatic rethink of next-gen architectures extends to their IC partners, which face new expectations for interchangeable platforms and improved visibility into their business. OEMs are spending massively, and chip designers want that money. The questions come down to the accommodations chipmakers are willing to make, and how creative their solutions will be, as they pursue tighter OEM relationships.  

Hit hard by semiconductor supply chain disruptions in 2021, automakers are wising up. As they rethink relationships with semiconductor suppliers, they are redrawing their next-generation vehicle architectures and decoupling software from hardware, hoping to gain the ability to swap out chips if needed. Car OEMs are also taking a sharp turn toward software-defined and software-upgradable vehicles.

“Massive changes are going on across the board,” observed Brian Carlson, global marketing director at NXP Semiconductors. The auto industry is “publicly talking about $20 billion to $30 billion investments per OEM” while actively “retooling both at personnel and structural levels.”

In the last few months alone, leading car OEMs have revealed, in the most public way, big shifts in strategy. Some examples: 

  • Ford signs up with GlobalFoundries.
  • General Motors joins forces with Taiwan Semiconductor Manufacturing Co. (TSMC). 
  • GM names six chip suppliers — Qualcomm, STMicroelectronics, Renesas, NXP, Infineon and On Semi — as partners it integrates and consolidates electronic control units (ECUs) into domain controllers for distributed processing in future vehicles.
  • Stellantis, the global automaker that resulted from the 2021 merger of Fiat Chrysler and France’s PSA Group, last month unveiled its ambition to move to a software-defined platform for all brands and models. It will invest more than $33.7 billion through 2025 into software and electrification, and it expects to employ 4,500 software engineers by 2024. 
  • BMW Group selects vision perception, vision SoC, and ADAS central compute SoC offerings from Qualcomm’ Snapdragon Ride ADAS Platform for its next generation of ADAS and autonomous driving systems.

The OEMs are undertaking these changes “in part [as] a response to the semiconductor shortage in 2021 and in part based on where they want to see their [vehicle] architectures go in the future,” said Phil Amsrud, senior principal automotive analyst at IHS Markit. Most of the OEMs seek “a more direct relationship with semiconductor suppliers,” he added.

It’s too early to tell whether the automakers’ strategic measures will help secure their future with semiconductor suppliers. Perhaps the more apt question is how the semiconductor supply chain disruption has changed the balance of power between carmakers and chip vendors.

Ford and GlobalFoundries, for example, indicated that their nonbinding “strategic collaboration” could involve increasing production capacity and performing joint research and development in several chip categories. But the companies did not disclose terms of the deal or say whether Ford was providing funds or a commitment to reserve capacity at any of GlobalFoundries’ current or future factories. 

Last fall, NXP CEO Kurt Sievers said he’d been holding “a higher frequency of customer meetings — by a factor of five, easily five” in 2021 compared with “any year earlier in my career … I believe it is a transformation of the value of the semiconductor industry, of the way the downstream industries are looking at semiconductors as an incredibly important and critical part of infrastructure.”

Balancing act

Chip shortage or not, automakers have begun changing the way they deal with Tier Ones and chip suppliers.

Traditionally, if an OEM wanted a new feature, such as Park Assist, it would define the specs and ask Tier Ones to develop a box that would meet them. The completed Park Assist module would then be piled on to the boxes already installed. Some vehicles ended up with as many as 175 boxes, observed NXP’s Carlson. 

Recognizing that continued ECU proliferation — adding a box for every new function — is untenable, OEMs are beginning to consolidate ECUs into domain controllers to enable a modular, zonal approach to processing. Today, every new feature added must be viewed holistically, at the vehicle level. 

Against this backdrop, NXP’s Carlson noted that the pandemic has not slowed the auto industry. Rather, “we’ve seen tremendous acceleration on OEMs worldwide making major decisions and investments.”

“OEMs are changing their whole strategies now,” noted Tom Hackenberg, a principal analyst for computing and software in the semiconductor, memory, and computing division at Yole Développement. The challenge is to do it “in the context of balancing the weight of the vehicle [fewer cables are better], balancing power consumption in the vehicle [too much computational power could limit an EV’s range], and balancing their relationships with various vendors.”

In short, for car OEMs, it’s decision time… Full article.