The global shortage of semiconductor chips has been a big problem for many industries. The car industry has been hit the hardest. It’s surprising to know that cars only use about 9 percent of all chips, worth just $39.5 billion. But, the car industry is expected to use even more chips by 2025, creating jobs for over 10 million people worldwide.
Everyone is wondering if 2025 will be a better year for chip supplies. The chip and car industries are watching closely. They are looking at both the challenges and chances for change.
Key Takeaways
- The auto industry’s reliance on mature semiconductor nodes (40nm and older) leaves it vulnerable to supply chain disruptions.
- Significant investments are being made to boost advanced logic chip manufacturing, potentially leading to underinvestment in legacy node production.
- Global chip demand is expected to rebound in high-performance computing and consumer electronics, risking the resurgence of supply constraints.
- Closer collaboration between the chip industry and automotive sector is crucial to align supply and demand signals.
- The semiconductor shortage’s impact on the automotive industry underscores the need for strategic planning and risk mitigation strategies.
Understanding the Current State of Semiconductor Supply Chain
The global semiconductor industry has faced a shortage in chip fabrication capacity for years. This shortage started in early 2020 due to the COVID-19 pandemic. It has lasted over three years and affected many industries, including automotive, consumer electronics, and artificial intelligence.
Impact of Mature Node Shortages
The chip shortage has made it hard to see the impact of mature node shortages in 2022 and 2023. A temporary demand slowdown hid this issue. However, by the end of 2024, automotive chip levels are expected to be low again.
This is because of a big increase in new battery-electric vehicle launches in Europe in 2025. Also, analog chips could become a problem for car production. The number of analog chips per car is expected to rise by 23% in 2026.
Key Market Indicators and Trends
The semiconductor industry is expected to reach $1 trillion by the end of the decade. Sales are projected to grow steadily at an average of 6% to 8% a year through 2030. In 2020, the global semiconductor market value grew by 6.8% compared to 2019.
It is forecasted to grow from $573.44 billion in 2022 to $1,380.79 billion by 2029.
Global Manufacturing Capacity Assessment
Efforts are being made to solve the chip shortage. This includes increasing skilled professionals in the semiconductor industry. However, there is a shortage of skilled engineers, with 67,000 new jobs at risk of being unfilled by 2030.
The chip supply started to improve in 2022. More semiconductor capacity came online, leading to a prediction of no major constraints moving forward.
| Key Indicator | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Global Semiconductor Market Value (Billion USD) | $573.44 | $621.29 | $722.84 | $821.95 |
| Global Auto Production Growth (Year-over-Year) | -26% | 3% | 5% | 8% |
| Unfilled Semiconductor Industry Jobs | 35,000 | 45,000 | 55,000 | 67,000 |
The Looming Threat of Semiconductor Chip Shortages in 2025
The semiconductor industry is getting ready for a possible Automotive Chip Crisis and Consumer Electronics Shortage by 2025. Experts say there’s a high chance of chip shortages in cars. This is due to several reasons.
One big worry is the low chip stock levels by the end of 2024. This is when many new electric cars will hit the roads in Europe. The demand for these chips will go up, making the supply even tighter.
The chip industry might also face too much production in 2023. This is because demand from phones and gadgets is going down. This could lead to less investment in the older chip technology needed for cars, industrial use, and some gadgets.
Car chip makers are also trying to lower prices. This could make things harder for car companies. If other industries with higher profits want more chips, car companies might not get enough.
Mainland China is working to grow its chip-making abilities. They’re focusing on the older chip technology needed for cars. This could help China control the global chip supply if there’s a shortage.
Even though the shortage in late 2025 might not be as bad as before, there’s still a chance of a mismatch between supply and demand. The industry needs to stay alert and work on making their supply chains stronger. This is to protect important areas like Automotive Chip Crisis and Consumer Electronics Shortage.
Investment Patterns in Advanced vs. Mature Nodes
The semiconductor industry is pouring a lot of money into advanced nodes like 5nm and 3nm. This is to meet the demand for fast and energy-saving chips. These new technologies are key for the latest in AI, cloud computing, and mobile devices.
But, there’s been less money going to mature nodes. These are important for cars, industrial use, and some gadgets. This imbalance has led to a chip shortage, causing problems in many areas.
Focus on 5nm and 3nm Technologies
Big names like Taiwan Semiconductor Manufacturing Company (TSMC) are seeing their sales go up. This shows the chip market might be getting better. The main reason is the growing need for chips in Microchip Manufacturing and new tech.
Underinvestment in Legacy Node Production
The focus on new nodes has left mature nodes behind. This has made it hard to get chips for older technologies. Many industries are feeling the pinch because of this.
Market Demand Distribution
- The need for AI and cloud computing has made the chip shortage worse. These areas need chips that are often made on new nodes.
- Car makers have been hit hard by the shortage of mature node chips. In 2021, they lost about 9.5 million units because of it.
- While things have improved in 2023, with fewer losses, the risk of more problems is still there. Demand for chips is still higher than supply.
| Key Semiconductor Metrics | 2021 | 2022 | 2023 |
|---|---|---|---|
| Global Light-Vehicle Production (million units) | 85.6 | 88.0 | 94.0 |
| Light-Vehicle Production Loss due to Chip Shortage (million units) | 9.5 | 3.0 | 0.5 |
| Semiconductor Value per Vehicle (US$) | 500 | 800 | 1,400 |
The semiconductor world is facing big challenges. It needs a balanced approach to investing in both new and old node production. This is key to keeping the global supply chain strong.
Automotive Industry’s Vulnerability to Chip Constraints
The Automotive Chip Crisis and Silicon Wafer Shortage have put the auto industry in a tough spot. Automakers usually use chips with nodes over 28nm, which are hard to find. But, a drop in demand for electric vehicles (EVs) has led to more hybrid cars being made. These hybrids need fewer chips than EVs.
This change in what people want might help chip supply for others. Experts think there will be more chips available for the auto industry. Yet, the chip supply chain problems are still a big worry for the industry’s comeback.
| Key Statistic | Impact |
|---|---|
| The U.S. market share in chip manufacturing is projected to grow to only 14% despite significant government subsidies and private investments. | Highlights the ongoing challenges in the domestic semiconductor industry and the need for further investment and policy support. |
| The Biden Administration’s CHIPS and Science Act of 2022 includes $52 billion in government subsidies to support the return of chip manufacturing to the U.S. | Demonstrates the government’s efforts to address the Automotive Chip Crisis and strengthen the domestic semiconductor industry. |
| The surge in cryptocurrency contributed to increased demand for chips due to the computing power required. | Illustrates how various industries’ demand for semiconductors can exacerbate supply chain issues, impacting the automotive sector. |
As the auto industry faces these tough challenges, it’s key for makers to find new ways to be strong. They need to find ways to deal with the Automotive Chip Crisis and Silicon Wafer Shortage.
“The ongoing global chip shortage has benefited the automotive sector, but rising interest rates could limit the industry’s ability to increase prices and generate profits.”
China’s Strategic Position in Mature Node Production
Mature nodes in the semiconductor industry are chips made at 28 nanometers (nm) or above. These chips are key for many applications, especially in cars. China is focusing on growing its production in these areas, making it a big player in the industry.
Geopolitical Implications
China’s push into mature node production could be both an economic and political move. It could change global supply chains and make deals with car makers and other industries. This could lead to better terms for China, causing worries about supply chain issues and political tensions.
Supply Chain Control and Influence
In 2023, China’s foundries and integrated device manufacturers (IDMs) split was about 60/40. By 2030, it’s expected to be 64/36. This shows China’s aim to grow its own production, giving it more control over the global supply chain.
Chinese companies like SMIC and Huahong are focusing more on the domestic market. SMIC now makes almost 80% of its chips for China. This means China is working to secure its own chip supply, which might limit global availability.
The global semiconductor industry aims for 15-20% overproduction in mature chips. This helps manage supply and demand. China’s share in global front-end manufacturing for mature nodes is big, from 27% for 28-65 nm to 20% for 90-180 nm. This shows China’s big role and influence in this market segment.
The Role of AI and Cloud Computing in Chip Demand
The semiconductor industry is seeing a big increase in demand. This is because of the fast growth of artificial intelligence (AI) and cloud computing. Chip Demand Surge and 5G Infrastructure Delays are key factors shaping the industry’s future.
AI applications, from edge computing to data centers, are growing fast. TSMC, a top chip maker, is seeing more demand for chips because of AI. This trend is expected to keep growing.
Cloud computing is also driving up Chip Demand Surge. Big cloud providers plan to spend more on AI and computing in 2024. This means they need more powerful chips, putting pressure on the supply chain.
Experts say demand for semiconductors will outpace supply until 2027. To meet this demand, the industry might need to build more advanced fabs. This could cost between $40 billion to $75 billion.
The supply chain is at risk from weather, natural disasters, and global tensions. Keeping the supply chain strong and flexible is key. This ensures the industry can meet the growing demand for chips, driven by AI and cloud computing.
“The demand increase of about 20% or more has a high likelihood of causing a chip shortage in the semiconductor industry.”
| Sector | Projected Growth |
|---|---|
| AI Workloads | 25% to 35% annually up to 2027 |
| AI Software and Hardware Market | 40% to 55% annually over the next three years |
| Total AI Market Prediction for 2027 | $780 billion to $990 billion |
| GPU Demand Doubling by 2026 | Requires 30% or more increase in output |
| Bleeding-Edge Fabs Output Increase | 25% to 35% between 2023 and 2026 |
Supply Chain Resilience and Risk Mitigation Strategies
Companies are finding new ways to deal with Supply Chain Disruptions and Microchip Manufacturing issues. They aim to make their semiconductor supply chains more resilient and reduce risks.
Building Robust Supplier Networks
To tackle the shortage of key parts, many firms are using inventory prepayments. For example, Micron got $600 million in prepayments in Q1 2024. NVIDIA also made $775 million in upfront payments for advanced memory chips.
Creating strong supplier networks worldwide is another strategy. It helps OEMs find alternatives when there’s a shortage. Using advanced analytics and consulting with others in the industry helps manage risks better.
Inventory Management Solutions
- Many industries, like Medtech, are ordering more to avoid future shortages.
- A SEMI survey from Spring 2022 shows most companies don’t have long-term agreements. Three-quarters of the semiconductor supply chain lacks these agreements.
- Supply chain disruptions in semiconductors increased by 88% from 2020 to 2021. This highlights the need for good inventory management.
By using these strategies, companies can make their Microchip Manufacturing supply chains more resilient. They can better handle the challenges of Supply Chain Disruptions.
“Building robust supplier networks globally and close to base gives OEMs options during shortages. Leveraging advanced analytics and consulting multiple industry players helps gain a holistic approach.”
Market Recovery and Normalization Expectations
The semiconductor industry is working through the Semiconductor Chip Shortages. Experts think the market will start to recover and normalize by 2025. This will happen because of several important factors.
One big reason is the end of “Take or Pay” contracts. These contracts made it hard for supply and demand to match. When they end, makers can make more products based on what the market really needs. This will make it easier to know how much to make and when.
Also, the economy is expected to get better. This will help companies invest in making more chips and improving technology. The growing need for chips in new areas like AI and cloud computing will also help balance demand.
| Key Drivers for Market Normalization | Projected Impact |
|---|---|
| Termination of “Take or Pay” contracts | Increased supply flexibility and visibility |
| Improved economic conditions | Increased investment in capacity and technology |
| Growth in AI and cloud computing | More balanced demand landscape |
But, experts say the “new normal” might not mean no supply problems at all. There could still be times when certain types of chips are hard to get. This is because demand keeps changing and the industry is always trying to keep up with new tech.
In short, the semiconductor market is expected to get better by 2025. This will be thanks to the end of strict contracts, a stronger economy, and growth in new areas. While we might not see everything go back to normal, the industry is working hard to deal with Semiconductor Chip Shortages and Chip Demand Surge.
Conclusion
The pandemic has taught the semiconductor industry a lot about supply chain issues. They’ve made big improvements in forecasting and processes. But, some disruption is still expected.
There might be a shortage in late 2025, but it won’t be as bad as before. The main issue will be finding the right balance between supply and demand. This will be harder because of changes in global demand.
OEMs need to make their supply chains stronger. They should take action early and use advanced analytics. This will help them deal with ongoing problems and ensure a steady supply of semiconductors.
The industry must stay alert and adjust to new market trends. Investing in making the supply chain more resilient is key. By being proactive and using strong risk management, the sector can face future challenges head-on.
