The Other Side of the Chip Shortage in Automotive: A Game of Interests Under the Butterfly Effect

Recently, due to the chip shortage, automotive giants such as Germany's Volkswagen, America's Ford, and Japan's Toyota have all been forced to halt production. The "chip crunch" continues to spread across automakers in multiple countries, severely impacting chip production capacity for gaming consoles, PCs, and smartphones. As a result, a situation of cross-industry competition for limited chip resources is gradually emerging.
Recently, a group of U.S. chipmakers—including Intel, Qualcomm, Micron, and AMD—wrote to President Biden, urging the administration to provide funding and support for the semiconductor industry's growth. Meanwhile, the Biden administration has already signaled its intention to tackle the ongoing "chip shortage" crisis. It’s not just the automotive sector facing shortages anymore; even smartphones are starting to feel the pinch. Earlier, Apple CFO Luca Maestri revealed that the iPhone 12 series is grappling with tight supplies of semiconductor components, leading to a persistent imbalance between supply and demand that could persist for several months. Reportedly, to ensure smooth production, Apple has even reallocated some parts originally intended for iPads to its iPhone assembly lines. Meanwhile, gaming giant Sony also explained the reason behind the recent stock shortages of its new consoles: the custom AMD System-on-Chip (SoC) designed specifically for Sony is being impacted by TSMC’s limited manufacturing capacity, making it impossible to maintain a steady, large-scale supply.
In other words, as the chip shortage—previously highlighted in the automotive industry—began to spread, both smartphones and gaming consoles have started feeling the impact. The root cause of the chip shortage in cars is complex, but there’s a growing consensus that it stems from an underestimation of chip production capacity. Specifically, automakers’ supply chains submitted significantly lower demand forecasts to chipmakers, prompting chip manufacturers to cut back sharply on production capacity allocated to automakers—and instead shift their focus toward meeting the surging demand for chips in consumer electronics sectors like smartphones, PCs, and gaming consoles.
However, as the automotive industry experienced an unexpectedly strong recovery in demand, it began bypassing suppliers and placing direct orders with semiconductor manufacturers. Yet, chipmakers like TSMC and UMC have already seen their production capacities fully booked, operating at full capacity to meet the surging consumer electronics demand. This situation has severely constrained their ability to accept new orders from the auto sector, forcing automakers to postpone their additional chip procurement needs. Unsurprisingly, automakers are growing increasingly anxious—and some have even started pressuring these chip giants to "cut in line," reallocating existing production capacity specifically for automotive chips. Ironically, this move has inadvertently squeezed the supply of chips destined for other key markets, such as PCs and smartphones, triggering a ripple effect that’s exacerbating the global chip shortage.
The production cycle for chip manufacturers—from research and development to certification—is a lengthy process, making it challenging to keep pace with the evolving dynamics of the automotive market. It seems no manufacturer has quite found the right rhythm, making it incredibly difficult to maintain a balanced supply-demand relationship. Yet despite these challenges, we can still hear complaints from the automotive industry directed at chipmakers. After all, even amid surging demand for smartphones, computers, and gaming devices driven by the pandemic, automakers shouldn’t be left without critical chip supplies, threatening their ability to sustain production. That’s precisely why numerous car companies in the U.S., Japan, and Europe are now reaching out for assistance, urging major manufacturers like TSMC to step in and lend a helping hand.
From this chip shortage crisis, we can see that companies with integrated operations spanning IC design, wafer manufacturing, packaging & testing, and semiconductor foundry services include major semiconductor giants such as AMD, Freescale, Infineon, STMicroelectronics, Intel, Renesas, Texas Instruments, and GlobalWafers.

However, global chip manufacturing and foundry services almost entirely rely on a handful of major manufacturers in Asia—primarily Samsung and TSMC. Among them, TSMC’s importance has become increasingly prominent, making it an indispensable core player that the global chip industry simply cannot bypass. Several leading chipmakers, led by TSMC, are steadily gaining greater influence, with just a few companies now controlling as much as 80% of the global market share, highlighting their clear and irreplaceable role. Meanwhile, these dominant chip manufacturers’ growing control over the global semiconductor business is also revealing critical vulnerabilities in the worldwide chip supply chain. This realization isn’t limited to China—countries ranging from Japan to the United States are now recognizing the vital importance of developing independent alternatives and fostering self-reliance in this strategically crucial sector.
Because behind the drive for self-reliant chip substitution lies, on one hand, the tight supply of chip production capacity, and on the other hand, it may also stem from the ongoing tug-of-war between the chip supply chain and automakers, as well as strategic adjustments made by supply-chain players based on their own interests. At the same time, this trend reflects the growing bargaining power and influence that chip manufacturers now hold. Currently, new-energy vehicle makers typically rely on 14-nanometer process chips, such as Tesla's FSD chip. In contrast, chipmakers like TSMC are aggressively pushing forward with breakthroughs in advanced processes like 5nm and 3nm—and their willingness to produce foundational chips for both new-energy vehicles and conventional gasoline-powered cars (such as 28-nm and 48-nm process chips) doesn't appear particularly strong at the moment.
After all, these major manufacturers are continuously adopting advanced processes like 7nm and 5nm, while production lines for mature processes such as 45nm and 28nm—essential for automotive semiconductors—are already being scaled back. If automakers push for increased production, they may face even steeper price hikes. Reportedly, foundries like TSMC have indicated their willingness to meet the growing demand for automotive chip manufacturing, albeit with a proposed price increase of up to 15%. As a result, industry insiders suggest that the more likely scenario isn’t underestimating market capacity—but rather a strategic tug-of-war between automakers and chipmakers over chip pricing. Both sides appear reluctant to compromise, which ultimately threatens to delay the pace of chip supply. For chip foundries, under conditions of limited production capacity, deciding whether to prioritize manufacturing chips for cars or shifting resources toward smartphones and computer chips requires careful consideration of maximizing profits and ensuring optimal return on investment.
At the core of this situation lies the fact that companies like TSMC now hold greater bargaining power, enabling them to decide what to produce—and what not to. Even a slight shift in direction by chip manufacturers can ripple through every link of the global supply chain. Moreover, the technological expertise accumulated by industry giants such as TSMC is so advanced that, for the time being, it remains extremely challenging for other players to catch up. Additionally, for companies like Samsung, ASE, UMC, and TSMC, chips used in smartphones and PCs represent their largest and most lucrative customer segments. In contrast, automotive chips, though critical, often don’t generate enough volume to secure priority access to production capacity. As a result, when capacity shortages arise, these major suppliers naturally prioritize their high-volume clients—leaving automotive manufacturers to contend with limited availability. Yet, viewed from another angle, global chip shortages have actually been a recurring issue over much of the past two decades. This is largely due to the unpredictable nature of shifting demand patterns in the semiconductor industry, coupled with the inherently lengthy lead times involved in chip manufacturing. The design and verification process for chips typically spans about a year, while automotive-related chips must also meet stringent safety regulations. Meanwhile, the entire chip production ecosystem is remarkably complex, involving numerous stages and a vast array of materials.
Looking ahead, chip manufacturers are increasingly focusing on artificial intelligence as well as 5G and IoT chips, which could potentially weaken demand and production capacity for automotive and computing chips. Currently, the automotive and smartphone industries are fiercely competing for limited chip production capacity from a handful of major players like Samsung and TSMC. As the semiconductor shortage continues to ripple through the automotive sector, it has heightened concerns within the smartphone industry. To safeguard against supply chain disruptions that might disrupt their upcoming product launches, major smartphone and PC manufacturers—including Huami, Xiaomi, and OPPO—have ramped up efforts to stockpile excess inventory by placing larger-than-needed orders for chips. Data shows that China's total chip imports surged to $380 billion in 2020, yet this very behavior of smartphone giants hoarding chips has inadvertently left the automotive industry struggling to secure even basic components. Such mutual anxiety in the market has only intensified the global chip shortage.
From the intentions revealed by current chip manufacturers, it seems that, amid soaring demand for chips in sectors like smartphones and PCs, they are somewhat overlooking the automotive chip order market. On one hand, automotive chips don’t align with the trend and direction of chip upgrades, as the automotive industry primarily seeks more entry-level, lower-end chip solutions. Yet, in reality, the automotive chip market boasts significant production capacity. Currently, however, SMIC’s sales share in automotive and industrial chips remains below 20%, while TSMC, the world’s largest foundry, generated only 3% of its 2020 revenue from the automotive chip segment. By contrast, TSMC has seen record-breaking orders in areas such as smartphones, machine learning, and artificial intelligence.
The irony lies in the fact that automakers are desperately in need of chips, while smartphone and PC manufacturers, driven by uncertainty about the future, have placed excessive orders—creating a complex web of competing interests among themselves. This pressure is ultimately passed down through the supply chain. Meanwhile, a handful of major chipmakers, motivated by their own profit-maximizing agendas, are shifting their long-term strategic focus toward areas like smartphones, artificial intelligence, and even 5G IoT chips. This is precisely why Volkswagen recently criticized its suppliers, claiming the chip shortage stemmed from suppliers' lack of confidence in the company's automotive market forecasts. At its core, however, this conflict reflects a broader power dynamic: chip manufacturers now hold significantly more leverage in the industry.
However, in fact, even from the perspective of strategic interests, major manufacturers like TSMC should instead turn their attention to the growing demand for automotive chips. After all, while chip profits in the automotive sector may not yet match those in areas such as smartphones, it’s crucial to consider the massive future demand for chips driven by the booming new-energy vehicle market. As NEVs become increasingly popular, chips for autonomous driving and in-vehicle infotainment systems will gradually evolve into the core components of automobiles. Moreover, the chip capabilities embedded in automotive microcontrollers (MCUs) and sensors are set to become a key differentiator for automakers. Data shows that NEV manufacturers are already poised to purchase nearly twice as many chips compared to traditional fuel-powered vehicles—specifically, the demand for power devices alone is expected to surge by more than 100%. Looking ahead, there remains tremendous untapped potential for profitability in the production of automotive chips.
While focusing too much on the profit opportunities from smartphone oversubscription can be both beneficial and detrimental—allowing companies to rake in substantial earnings in the short term—it actually undermines the healthy functioning of the supply chain. This is because, once supply eventually recovers, manufacturers often rush to slash orders again. Such volatile fluctuations in supply rhythms frequently put suppliers’ inventory levels and cash flows at risk, a challenge Cisco faced painfully two decades ago. To ensure stability, it’s crucial to maintain steady supply for smaller, scattered customers while thoughtfully scaling back order demands from larger clients. This approach fosters a more balanced and sustainable strategy, enabling companies to safeguard their diversified business portfolios and revenue streams. By doing so, they can avoid being overly reliant on just a few major players, whose sudden order cuts or shortages could otherwise trigger severe disruptions to their operations.
However, no matter what, the global chip industry as a whole feels overwhelmed by the ongoing chip shortage. As a result, companies waiting for their chips may continue to face even greater challenges in 2021. To address this issue, beyond overcoming the current production bottlenecks, it may also be necessary to carefully manage the delicate balance of interests between automakers and chip manufacturers.

Translated from Sina Auto

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