Inventories of automotive chip suppliers such as Renesas and NXP rose for the first time in nine months.

According to the Nikkei Asia Review, inventories of major global automotive chip suppliers, such as Renesas Electronics, NXP, Infineon, St Semiconductor and Texas Instruments, have risen for the first time in nine months, indicating that the supply of chips in the global automotive industry is improving.

As demand remains high, the outlook for the coming months remains uncertain, the report said. But the rise in inventories shows that the phenomenon that car companies are shutting down production due to a shortage of car chips is gradually easing.

Chipmakers' sales have soared since the fourth quarter of last year, while inventory growth has lagged. Inventory levels continued to deteriorate in the coming quarters as production struggled to keep up with carmakers' demand.

From July to September this year, the situation began to improve. The total inventory of the five chipmakers rose 0.7 per cent from a year earlier, the first increase in three quarters.

One of the reasons for the increase in inventories was the suspension of production, as extreme weather disrupted chip production in Texas in the United States in early 2021, and epidemic-related restrictions also hit suppliers in Southeast Asia. In addition, a fire at Renesas's factory in Tokyo also disrupted production. Since a great deal of relief is required between the restart of the production line and the delivery of finished products, it takes time to restore production.

Another reason is the lack of capacity of contract chipmakers or contract manufacturers, which earlier focused on products such as higher-margin smartphone chips before shifting more production lines to making automotive chips.

Chipmakers and their customers say the third quarter of 2021 is a turning point. Wei Zhijia, president of TSMC, said in July that the shortage of automotive chips was expected to be greatly reduced from July to September. Continental Germany, one of the world's largest auto parts suppliers, also said on its latest earnings call, "We do believe that the worst period of semiconductor shortage is over."

But the risk of further shortages has not completely subsided, and carmakers are planning to make up for production cuts from July to September, so their demand for chips will remain strong. Chip inventory across the supply chain, including parts manufacturers and trading companies, will take more time to recover.