Good visibility of automotive chip demand head companies sign contracts with contract manufacturers to lock production capacity in advance

In the middle of 2021, the automobile industry has not yet fully overcome the twists and turns caused by lack of core. Among them, although automotive chip manufacturers have not yet extricated themselves, they have learned lessons and deployed ahead of time, trying to "stop fighting unprepared battles."

According to Taiwan's Electronic Times, due to the serious core shortage, automotive chip manufacturers have changed the order mode of wafer foundry from the previous "JIT (Just in time, just-in-time production, which means no inventory or inventory is minimized to reduce costs)" to contract factories to book capacity in advance-- which is rare in the field of automotive chips.

It is reported that NXP (NXP) has signed long-term contracts with TSMC, UMC and LSMC, while Italian Semiconductor, Renesas and Infineon have also signed agreements with TSMC and other contract factories, with order visibility up to 2023.

From the JIT model of pursuing zero inventory to the "JIC (Just in case)" of preparing in advance just in case, we may be able to see from the side that automotive chip manufacturers are optimistic about the demand expectations in the future.

Lack of core "hurricane" began last year, so far, Volkswagen, Toyota, Hyundai and many other car companies have been involved. According to HIS's estimate, the production reduction of light vehicles caused by the shortage of chips in Q1 will reach 672000 in 2021, and the number of Q2 will reach 1.3 million in 2021.

The situation is becoming more and more serious, a number of governments in Europe and the United States have stepped in to put pressure on wafer factories to move production lines for automotive chips. On the other hand, automotive chip manufacturers also accept the OEM price increase strategy, and even show that urgent orders can be significantly increased, and finally strive for OEM production capacity.

For example, TSMC has previously announced that it will fully support the automotive chip industry, predicting that Q3 will solve most of the order congestion of automotive chips this year; and behind the company's Nanjing 28nm production expansion plan, a big boost is the future of the automotive chip manufacturers.

In addition, it is reported that overseas automotive chip suppliers have also informed customers that chip shipments will increase by 30% in the second half of the year than expected, and the delivery time will be significantly lower than 50 weeks.

Short-term supply falls short of demand is in sight, but due to the automobile "four modernizations" push up the three power (battery, electric drive, electronic control) demand, industry insiders are still optimistic about the prospect of high automotive chips.

According to the analysis of Strategy Analytics, the market demand in 2021 is still strong, and the automotive semiconductor industry is expected to enjoy a period of sustained earnings and profit growth.

TSMC, United Power and other contract manufacturers also believe that, in addition to 5G, HPC, automotive chips will become the next semiconductor market, one of the strongest growth momentum areas.

Wu Jisen, an analyst at Guohai Securities, pointed out that the "four modernizations" of the automobile industry have led to the reshaping of the product value chain-- the related systems and components of the internal combustion engine are constantly shrinking, and the vehicle cost proportion of the three electric power (battery, electric drive, electric control) is gradually rising, up to 50%.

On the one hand, as one of the key carriers of automobile electrification, the demand value of vehicle chips has increased exponentially, and the total semiconductor value of pure electric vehicles is expected to increase by more than 70% compared with traditional cars.

On the other hand, intelligence is also a major factor to guide the status of automotive chips. Citic Construction Investment and Open Source Securities Research News all believe that with the accelerated development of automobile intelligence, the demand for computing power has ushered in explosive growth, and the chip (especially the main control chip) has become the core of the upgrade.

Guohai Securities said in the above research report that China is a large country in automobile production and marketing, and the new energy vehicle industry chain is mature, the domestic automotive chip supply chain is expected to further develop.