TAIPEI / SHANGHAI / SINGAPORE, July 19 (Reuters) – From his small office in Singapore, Kelvin Pang is ready to bet on a $ 23 million payday so that the worst of the chip shortage is not over. to car manufacturers, at least in China.
Pang has purchased 62,000 microcontrollers, chips that help control a range of functions, from car engines and transmissions to electric vehicle power and charging systems, which cost the original buyer $ 23.80 each in Germany.
He is now looking to sell them to car suppliers at the Shenzhen Technology Center in Shenzhen for $ 375 each. He says he has turned down offers of $ 100 each, or $ 6.2 million for the entire package, which is small enough to fit in the back seat of a car and is now packaged in a warehouse in Hong Kong.
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“Automakers have to eat,” Pang told Reuters. “We can afford to wait.”
The 58-year-old, who refused to say what he himself had paid for the microcontrollers (MCUs), makes a living by marketing the excess electronics inventory that would otherwise be eliminated, connecting buyers in China with overseas sellers.
The global shortage of chips over the past two years, caused by the pandemic supply chaos combined with rising demand, has transformed what had been a high-volume, low-margin trade into one with the potential for deals to generate wealth, he says.
Automotive chip ordering times are still long around the world, but brokers like Pang and thousands like him are focusing on China, which has become zero by a crisis that the rest of the industry s ‘is gradually advancing.
Globally, new orders are backed by an average of about a year, according to a Reuters survey of 100 car chips produced by the five leading manufacturers.
To counter the tightening of supply, global automakers such as General Motors Co. (GM.N), Ford Motor Co. (FN) and Nissan Motor Co. (7201.T) have moved to ensure better access through ‘a playbook that has included negotiating directly with chip makers. paying more per share and accepting more inventory.
For China, however, the outlook is more bleak, according to interviews with more than 20 people involved in the trade, from car manufacturers, suppliers and brokers to experts at the automobile research institute affiliated with the government of China CATARC.
Despite being the world’s largest automaker and leader in electric vehicles (EVs), China is almost entirely dependent on chips imported from Europe, the United States and Taiwan. Supply tensions have been exacerbated by a zero-COVID blockade at the Shanghai Automobile Center that ended last month.
As a result, the shortage is more acute than elsewhere and threatens to curb the momentum of the country’s electric vehicles, according to CATARC, China’s Automotive Research and Technology Center. An incipient domestic chipmaking industry is unlikely to be in a position to meet demand in the next two to three years, he says.
Pang, meanwhile, sees China’s shortage continuing until 2023 and considers it dangerous to keep inventory after that. The only risk for this view, he says, is a stronger economic slowdown that could depress demand sooner.
“POSSIBLE DIFFICULT” PREDICTIONS
Computer chips, or semiconductors, are used by the thousands in all conventional and electric vehicles. They help control everything from deploying air cushions and automating emergency braking to entertainment and navigation systems.
The Reuters survey conducted in June took a sample of chips, produced by Infineon, Texas Instruments, NXP, STMicroelectronics and Renesas, that perform a wide range of functions in cars.
New orders through distributors are stalled for an average of 49 weeks, until 2023, according to the analysis, which provides a snapshot of the global shortage, though not a regional breakdown. Delivery times range from 6 to 198 weeks.
German chip maker Infineon (IFXGn.DE) told Reuters that it is “rigorously investing and expanding manufacturing capabilities around the world,” but said the shortage could last until 2023 for subcontracted chips in the UK. foundries.
“Given that the geopolitical and macroeconomic situation has deteriorated in recent months, it is now unlikely that reliable assessments of the end of the current shortage are possible,” Infineon said in a statement.
Taiwanese chip maker United Microelectronics Corp (2303.TW) told Reuters it has been able to reallocate some of the capacity to car chips due to weaker demand in other segments. “Overall, it is still a challenge for us to meet aggregate customer demand,” the company said.
TrendForce analyst Galen Tseng told Reuters that if car suppliers needed 100 PMIC chips, which regulate battery voltage to more than 100 applications in an average car, they currently only get about 80.
THEY ARE LOOKING FOR CHIPS URGENTLY
Adjusted supply conditions in China contrast with improving supply prospects for global carmakers. Volkswagen, for example, said in late June that it expected chip shortages to be reduced in the second half of the year. Read more
The president of Chinese electric vehicle manufacturer Nio, William Li, said last month that it was difficult to predict which chips would be scarce. Nio regularly updates its “risk chip list” to avoid the shortage of any of the more than 1,000 chips needed to run production.
In late May, Chinese electric vehicle manufacturer Xpeng Motors (9868.HK) ordered chips with an online video with a Pokémon toy that had also been sold out in China. The swaying duck-like character waves two signs: “urgently searching” and “chips.”
“As the car supply chain gradually recovers, this video captures the current state of our supply chain team,” Xpeng CEO He Xiaopeng posted on Weibo, saying that his company was struggling to secure the “cheap chips” needed to build cars.
ALL ROADS TAKE TO SHENZHEN
The struggle for alternative solutions has led carmakers and suppliers to China’s main chip shopping center in Shenzhen and the “gray market” to negotiate supplies sold legally but not authorized by the original manufacturer, according to two people familiar with the trade of a Chinese electric vehicle manufacturer and an automobile supplier.
The gray market carries risks because chips are sometimes recycled, mislabeled, or stored in conditions that leave them damaged.
“Brokers are very dangerous,” said Masatsune Yamaji, Gartner’s director of research, adding that their prices were 10 to 20 times higher. “But in the current situation, many chip buyers have to rely on brokers because the authorized supply chain cannot support customers, especially small automotive or industrial electronics customers.”
Pang said many Shenzhen brokers were newcomers attracted by rising prices, but were unaware of the technology they were buying and selling. “They only know the part number. I ask them, do you know what this does to the car? They have no idea.”
While the volume of brokers is difficult to quantify, analysts say it is far from enough to meet demand.
“It’s not like all the chips are hidden somewhere and you just have to bring them to market,” said Ondrej Burkacky, McKinsey’s senior partner.
When supply normalizes, there may be an asset bubble in unsold token inventories in Shenzhen, analysts and brokers warned.
“We can’t hold out too long, but car manufacturers can’t stand it either,” Pang said.
SELF-SUFFICIENCY CHINA
China, where the design and manufacture of advanced chips are still lagging behind foreign rivals, is investing to reduce its dependence on foreign chips. But this will not be easy, especially considering the strict requirements for automatic quality chips.
MCUs account for about 30 percent of the total costs of chips in a car, but they are also the most difficult category for China to achieve self-sufficiency, said Li Xudong, senior director of CATARC, adding that the national players had only entered the lower end. of the market with chips used in air conditioning controls and seats.
“I don’t think the problem can be solved in two or three years,” CATARC chief engineer Huang Yonghe said in May. “We challenge other countries, with 95% of wafers imported.”
Chinese manufacturer EV BYD, which has begun designing and manufacturing IGBT transistor chips, is becoming a national alternative, CATARC’s Li said.
“For a long time, China has seen its inability to be fully independent in chip production as a major security weakness,” said Victor Shih, a professor of political science at the University of California, San Diego.
Over time, China could build a strong domestic industry as it did when it identified battery production as a national priority, Shih added.
“It caused a lot of waste, a lot of failures, but then it also caused two or three giants that now dominate the world market.”
(It is corrected to remove the incorrect reference to the average chip order delivery time in paragraph 16. The story was previously corrected to correct the attribution in paragraph 34 to Li Xudong of CATARC, not William Li of Nio.)
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Report by Sarah Wu, Zhang Yan, Kevin Krolicki, Jane Lanhee Lee, Tim Kelly, Chen Lin; Additional report by Norihiko Shirouzu in Beijing; Edited by Pravin Char
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