Germany looks to Taiwan for semiconductor solution

25 January 2021

25 January 2021

Germany has reached out to Taiwan in a bid to ease the semiconductor shortage currently causing production problems for carmakers. Europe’s automotive powerhouse has urged the Taiwanese government to lean on its country’s semiconductor manufacturers for additional capacity.

Recent shortages of the essential electrical component have seen Audi furlough 10,000 workers, Ford pause production and Volkswagen adjust its production. Honda, Nissan, Subaru, Toyota and Fiat Chrysler Automobiles (FCA – now part of Stellantis) have also reportedly been impacted as the importance of semiconductors to the automotive industry increases.

As a building block for new technologies, semiconductors are foundational for automotive progress. They form the basis of digital capabilities, from mapping, to connectivity and advanced driver-assistance systems (ADAS). However, component manufacturers have redirected supplies to other sectors, like consumer electronics, as carmakers saw sales slump due to COVID-19. Now, as the automotive industry gets back on its feet, with a renewed emphasis on electromobility and technology, semiconductors are more essential than ever.

The importance of additional capacity

In a letter seen by news agency Reuters, Germany’s economy minister Peter Altmaier asked Wang Mei-hua, Taiwan’s minister of Economic Affairs, to raise the matter with Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker and one of Germany’s chief suppliers. ‘I would be pleased if you could take on this matter and underline the importance of additional semiconductor capacities for the German automotive industry to TSMC,’ Altmaier wrote.

The German minister went on to highlight the need for additional capacities in the short and medium-term. This follows direct contact between the German government and TSMC about increasing deliveries, with ‘very constructive’ signals from the component manufacturer to solve the problem, he wrote.

Reuters said that Taiwan’s Ministry of Economic Affairs had confirmed the receipt of diplomatic requests to help ease the shortage for the automotive industry, although it was not aware of Altmaier’s letter specifically. The ministry claims to have begun talks with domestic chip suppliers in response to requests from other countries and asked them to ‘provide full assistance.’

The component manufacturer is reported to see the issue of chip shortages for automotive companies as very important. ‘It is our top priority, and TSMC is working closely with our automotive customers to resolve the capacity support issues,’ it said.

More local solutions

A German economy ministry spokesperson explained to Reuters that the shortage was being monitored very closely and that it was in talks with the automotive industry about the issue. They added that in an effort to reduce dependencies on Asian suppliers and avoid similar probems in the future, the state is looking to support an increase in more local production capacities in Germany and Europe.

These plans run in parallel with increased support for more local battery manufacturing. In August last year, Germany’s government outlined financial backing of a battery-cell factory in Sweden with a state guarantee of $545 million (€447 million). The guarantee is part of the government’s foreign-trade promotion, in which funds can be used to support projects abroad when there is a particular state interest – in this case, because of the importance to the country’s automotive and electromobility sector. 

As vehicles evolve from a mechanical pursuit to a digital one, manufacturers are now far more focused on electronics. Bans on internal combustion engines (ICE) not only mean the reduction of pollutants, but the need for complex drive systems with many moving parts. Instead of pistons, fans and drive-shafts, battery-electric vehicles (BEVs) demand motors, cells and circuit boards.

While this is a step forward, it puts the automotive industry on a direct collision course with other sectors like the consumer electronics industry, which has been one of the most demanding sectors when it comes to components like semiconductors and batteries. Now, all the automotive industry can do is hope for manufacturers like TSMC to bolster their output in the short-term, while more localised production measures up to demand in the long-term.