Global Foundries and General Motor Reach a Long-Term Direct Supply Agreement

On February 9, General Motors (GM) and Global Foundries jointly announced that they reached a long-term agreement, under which Global Foundries will directly supply chips to GM to prevent the latter from facing chip shortages again.

On the news, General Motors shares rose more than 2%, and Global Foundries gained over 5%.

Global Foundries plans to build exclusive production capacity at its semiconductor plant in upstate New York for GM. General Motors said that electric cars and electric trucks need more chips than traditional vehicles, which suggests that the semiconductor consumption in the automotive industry will more than double in the coming years.

The agreement is reportedly the first of its kind in the industry, as automakers traditionally do not purchase directly from chip suppliers. Usually, component suppliers will play as an intermediary during the negotiations between the two parties.

However, the chip shortage has forced car companies such as General Motors to dig further into the supply chains in order to secure an easier access to the parts for vehicles.

The auto makers have long been beset with chip shortage. Ford said this week that a global semiconductor shortage is still challenging auto makers, and some are more impacted than others. Data also show that as of the end of last year, nearly 18 million vehicles were forced to be withdrawn from the production plan.