[The Fierce Semiconductor Battle] $500 Billion Lost Due to Supply Shortage

Losses Approaching Approximately 600 Trillion Won Due to Chip Shortage Since COVID-19
Production Disruption of 580,000 Vehicles in Finished Cars... Annual Total Expected to Exceed 1.3 Million Units

[Asia Economy Reporters Choi Dae-yeol and Lee Hye-young] Over the two years following the COVID-19 pandemic, the global semiconductor chip shortage has caused companies to suffer losses exceeding $500 billion (approximately 596 trillion KRW). In particular, the severe supply-demand imbalance in automotive semiconductors has inflicted enormous damage not only on domestic and international global automobile industries but also on related upstream and downstream parts suppliers.

With widespread expectations that the supply-demand imbalance may continue for a considerable period, major global companies, viewing this as a 'market of opportunity,' have rushed to enter the automotive semiconductor market, signaling an industrial restructuring.

According to a report by Deloitte Global on the 22nd, it is estimated that semiconductor companies and their clients have incurred losses exceeding $500 billion over the two years from 2020 to last year due to the semiconductor shortage. The 'absence of chips' has shaken the global finished goods market.

Deloitte stated, "A single semiconductor chip can determine the sale of finished products worth tens of thousands of dollars," and forecasted, "Amid supply chain instability, the semiconductor industry's position will further expand, leading to unprecedented competition in securing workforce, facilities, clients, and entering advanced processes."

Semiconductor industry sales, which surpassed $500 billion for the first time last year, are estimated to exceed $600 billion (approximately 716 trillion KRW) this year. Market research firm Omdia expects the semiconductor sector's growth rate to slow to 4.2% this year from 21.1% last year. However, the automotive semiconductor market is projected to record double-digit growth, such as 17.8% this year, through 2025.

The automotive industry is one of the sectors most affected by the semiconductor shortage. Although semiconductor foundries like Samsung Electronics and TSMC are operating at 100% capacity and production costs have increased, supply still cannot meet demand. According to Deloitte, disruptions in semiconductor supply caused automotive-related sales worth $210 billion (approximately 250 trillion KRW) to evaporate last year.

Until now, only about five to six companies supplied automotive semiconductors due to low profitability, but the landscape is rapidly changing with the growth of the electric vehicle market and surging demand for high-performance automotive semiconductors. Intel, aiming to reclaim the 'semiconductor throne' lost to Samsung Electronics, has announced its entry into automotive semiconductor foundry (contract manufacturing). Samsung Electronics is also enhancing its presence by consecutively launching next-generation automotive system semiconductor products last year and supplying them to global brands.

Finished vehicles are waiting in the storage yard next to the export shipment dock at Hyundai Motor Company's Ulsan plant.
[Image source=Yonhap News]

Although global companies are rushing into the automotive semiconductor market, it is expected to take time before supply stabilizes. The finished vehicle industry anticipates production disruptions due to supply issues will continue this year as well.

According to market research firm AutoForecast Solutions, as of this week, the volume of disrupted production is estimated at 577,900 vehicles worldwide. In North America, including the United States, the figure was less than 100,000 vehicles earlier this month but has more than doubled in just over two weeks. Additionally, as of the end of last month, the expected annual production loss due to semiconductor supply issues has increased from 950,000 vehicles to over 1.3 million vehicles recently.

Opinions differ somewhat regarding the recovery timeline. Hyundai Motor and the U.S. General Motors (GM) expect recovery around the second half of this year, while Tesla and Volkswagen foresee the semiconductor shortage continuing throughout the year.