[Car Semiconductor Supply Shortage] COVID-19 Changing Industrial Landscape... Accelerated Supply Shortage

New Investment Challenges at Shaang Technology Amid Ongoing Vehicle Semiconductor Shortage
Long-Term Demand Expansion Possible Even After COVID-19 Supply Issues Resolve

[Asia Economy Reporter Yu Je-hoon] The global outbreak of the novel coronavirus disease (COVID-19) is reshaping the industrial landscape of the global finished car market. While automobile production and sales have contracted, the spread of non-face-to-face culture has increased demand for semiconductors used in various electronic devices, leading to a full-scale shortage of automotive semiconductors.

◆ Short-term supply shortage due to COVID-19 = Experts identify four main causes of the automotive semiconductor supply shortage: ▲ demand-supply mismatch due to COVID-19 ▲ increased semiconductor demand ▲ uneconomical nature of 8-inch foundries ▲ difficulties in new market entry due to stringent production conditions.

Among these, the most direct cause is the COVID-19 pandemic. Global finished car manufacturers faced production and sales disruptions in the first half of last year due to COVID-19, leading to consecutive production cuts. Consequently, semiconductor foundry companies also reallocated production facilities from automotive semiconductors to relatively high-margin semiconductors for electronic devices (smartphones, computers, home appliances, etc.).

However, in the second half of last year, as the automobile market showed a clear recovery centered on China and other regions, disruptions in the supply of automotive semiconductors occurred. With foundry companies not expanding production facilities and demand for semiconductors for electronic devices increasing, the supply shortage became full-fledged.

A representative from the finished car industry explained, "The finished car industry conservatively set inventory targets for automotive semiconductors considering demand contraction, but unexpectedly, the market showed a recovery, causing a mismatch between demand and supply. Even if foundry companies reallocate production facilities, actual operation takes time, so the supply shortage is expected to continue for at least several months."

◆ Difficulties in expanding production facilities and new market entry = The industry expects this supply shortage to last at least six months. It is difficult for foundry companies to easily increase production facilities. Generally, automotive semiconductors are produced through 8-inch foundries (wafer diameter 20 cm), which are advantageous for small-volume, multi-product production. The problem is that 8-inch foundries use outdated technology, making it difficult to expand production facilities or make new investments. Foundry companies are increasing investments in 12-inch foundries (wafer diameter 30 cm), which are advantageous for mass production of fewer product types, to secure profitability.

Due to the nature of the industry, it is not a phase where new players can easily enter. Automotive semiconductors require high reliability and stability to endure long lifespans and harsh temperature, humidity, and shock conditions due to the characteristics of automobiles operating under various adverse conditions. For example, the required lifespan of home-use semiconductors is 1 to 3 years with temperature conditions around 0 to 40 degrees Celsius, but automotive semiconductors require over 15 years and temperature ranges from minus 55 to 175 degrees Celsius. Recently, with the introduction of various new technologies, automotive semiconductor software is becoming more complex. Another industry insider noted, "It is true that new companies face significant burdens regarding defect occurrence, safety accidents, and recalls."

◆ Increased semiconductor demand across all industries... Cars also moving toward eco-friendly and electronic integration trends= Industry experts believe this supply shortage will not end as a one-time issue. The fundamental cause is the surge in semiconductor demand as the entire industry shifts toward non-face-to-face operations due to COVID-19.

Since last year, demand for semiconductors for electronic devices such as smartphones, tablet PCs, laptops, and servers has greatly increased. IT technology application is expanding across all industries, including service sectors like online lectures, telecommuting, digital healthcare, logistics, as well as smart factories and the Internet of Things (IoT). In the automotive industry, eco-friendly and electronic integration trends are accelerating with electric vehicles and autonomous vehicles emerging as future alternatives, making an increase in semiconductor demand inevitable.

Professor Lee Ho-geun of the Department of Automotive Studies at Daeduk University said, "The recent automotive semiconductor supply issue will be a fire to put out within a few months, but the problem is that demand related to autonomous driving technology and electric vehicle technology is likely to expand in the long term. Without fundamental measures, automotive semiconductor supply could become a serious issue over the next several years."