Semiconductors and truck chassis

By Mike Kastner, NTEA Managing Director
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This article was published in May 2021 edition of NTEA News.

Chassis availability issues are nothing new for truck equipment companies. The availability of semiconductor chips is likely to add another layer of supply issue concerns throughout the motor vehicle industry. It’s unclear precisely how long this particular disruption will affect vehicle production, but it seems likely to last, at least through third-quarter 2021.

A semiconductor manages and controls the flow of current in electronic devices and equipment. It’s estimated there are more than 20 microcontroller units (MCUs) that are required for all electronic control units (ECUs) throughout the average vehicle. Some of these controllers are used in the powertrain, braking system, electronic stability control, and any advanced driver assistance systems (ADAS).

In addition to expected vehicle start and stop functions being controlled by chips, any sort of displays, infotainment systems, wireless functions, battery management, etc., need chips.

For better or worse, so too are chips needed to produce thousands of different products. Ultimately, demand is running up against supply.

Why is this suddenly a problem?
As is often the case with supply issues, the current situation stemmed from a combination of factors, including — not surprisingly — the COVID-19 pandemic.

Initially, the pandemic caused a significant decline in motor vehicle sales. People were staying home and confidence in the economy was shaky. OEMs temporarily shut down factories and stopped orders of supplies, including chips.

Chip producers made their forecasts and chose to prioritize manufacturing chips for smartphones, laptops, tablets and gaming systems, instead of motor vehicles.

As people became accustomed to work and school from home, they invested in new computers, monitors, air fryers, blenders, and more — all using chips.

When motor vehicle manufacturers began ramping up production later last year and needed chips again, they were at the back of the line to some extent.

To add to it, there was a rare winter storm in Texas that shut down significant U.S. chip production, which was followed shortly after by a fire at the factory of one of the world’s leading chip makers in Japan. These events further compounded the structural supply-demand disconnect facing the motor vehicle industry.

The Texas storm and fire in Japan will result in delays even as the factories reopen. Semiconductors take approximately three months to be fabricated (or longer, depending on type), and the process is sensitive to disruption. It will likely be June before plants see pre-shutdown production levels.

Also, long lead-times for semiconductor production run up against the just-in-time production model of the motor vehicle industry.

While chip manufacturers are trying to produce as quickly as possible, they cannot currently keep up with demand. Adding manufacturing capacity is complicated by the current technology’s life cycle. Many chips used in the motor vehicle industry are made on 8-inch silicon wafers rather than the more advanced 12-inch wafers.  

The older 8-inch technology capacity is actually lower than it was just five years ago due to profitability. It’s unlikely chip manufacturers would invest in new capacity for older technology.

Even with announced plans to increase production in general to ease supply constraints, there is no short-term solution. It takes time to build new plants and/or expand output of existing facilities.

Chassis supply
Each OEM is working to address its own unique supply chain disruption issues. They will need to prioritize supplies to maximize production for customers. There are reports almost every day of what actions any given OEM is taking (or is considering) in the short run to continue manufacturing chassis. In many cases, these strategies call for shutdown days. Companies producing both cars and trucks similarly need to make difficult short-term decisions, sometimes prioritizing certain vehicles over others for production. In other cases, vehicles may be produced with certain options not being available.

Government involvement
NTEA and many business groups have been bringing this matter to the attention of Congress and the White House for months. The Canadian government has also been made aware of the industry’s concerns.

In January 2021, Congress passed the CHIPS for America Act as part of the fiscal year 2021 National Defense Authorization Act (NDAA). Once fully funded, this act will help provide manufacturing and research assistance to strengthen domestic chip manufacturing. In fact, construction of two new chip factories in Arizona was recently announced.

The motor vehicle industry is asking the Biden Administration to devote a portion of NDAA funds specifically to vehicle-grade chips.

In February, President Biden signed an Executive Order to conduct 100-day reviews of America’s supply chains in four key areas, including semiconductor manufacturing. In March, Commerce Secretary Gina Raimondo met with the semiconductor industry. After the meeting, she stated, “I believe we need to make strong investments in domestic manufacturing, research, and workforce, and help strengthen America’s global leadership in semiconductor manufacturing and innovation.

“The Biden-Harris Administration views semiconductors as a critical supply chain we must strengthen domestically. As the President said, the U.S. is the birthplace of this technology, but over the years we have underinvested in production and hurt our innovative edge, while other countries have learned from our example and increased their investments in the industry. As Secretary of Commerce, combatting the semiconductor shortage and investing in American manufacturing of semiconductor technology is going to be a priority of mine…”

Parting thoughts
The next time you go to the drive-thru and get only one packet of ketchup for your fries, remember this article. Apparently, the manufacturers of single-packet ketchup misread the pandemic, and their customers are facing a supply chain issue. The ketchup producers didn’t accurately forecast the transition of sit-down restaurants to takeout and delivery. Prices are up and supply can’t meet demand. Fear not, ketchup producers are adding capacity and factories are adding shifts.

If ketchup manufacturers can do it — can chips (semiconductor ones) be far behind?

IHS Markit: Impact of semiconductor shortages on global medium and heavy commercial vehicle production.

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