Analysis: chip shortage reveals Achilles heel of German recovery
Germany has exploded thanks to globalization, but now the global network of supply chains that energized its economy could prove to be a critical weakness.
Shortages of semiconductors and other industrial components threaten to derail the country’s economic recovery, forcing executives and policymakers to rethink supply lines and try to reduce reliance on a handful of Asian and American suppliers. .
Auto makers and electronics manufacturers, in particular, have been hit hard by delays in chip manufacturing, caused by a global deficit. It has become one of the biggest risks for Europe’s largest economy, in addition to a third wave of COVID-19.
The Ifo Economic Institute warned this week that supply bottlenecks have become widespread. The outlook is most precarious for the manufacturing sector, which generates around a quarter of economic output and is the engine of growth.
“The situation is very tense,” said Eckehart Rotter, a spokesperson for the German automobile association VDA, adding that the semiconductor problems were affecting automakers as well as suppliers.
Due to the shortage of electronic components, especially microcontroller chips essential to the operation of modern vehicles, production lines had to be shut down several times for several weeks due to delivery delays, Rotter said.
Volkswagen (VOWG_p.DE) and Daimler (DAIGn.DE) are among the companies that have been affected in the automotive sector, the engine of German manufacturing. Industrial giant Siemens (SIEGn.DE) is also struggling to get enough semiconductors.
The problem has forced many companies to announce short-time work and cut production for the coming weeks, with scarcity of components also expected to lead to higher end prices for consumers and overall inflationary pressures.
The production cuts suggest that passenger car production in Europe will miss expectations in the first half of the year.
“This affects highly integrated microprocessors as well as simple control elements,” said Rotter of the VDA, adding that more than 1,000 of these components are needed in some vehicles.
“The extent to which this deficit can be bridged in the second half of 2021 is currently still open. The situation remains critical.”
The global chip shortage is the result of a combination of factors, including the fallout from last year’s COVID-19 shutdowns and factories struggling to meet demand for semiconductors that have become ubiquitous in one more world. additionally digitized.
Automakers and suppliers rely almost exclusively on chips from a few manufacturers, the so-called foundries. These include Taiwan Semiconductor Manufacturing Co (TSMC), South Korean company Samsung Electronics Co Ltd (005930.KS), GlobalFoundries, United Microelectronics Corp (2303.TW) and SMIC whose production sites are located mainly in Taiwan, South Korea, China and the United States. .
“There is hardly any other economy that has benefited as much from globalization in recent years as Germany,” said Iris Ploeger, board member of the industry association BDI. But she admitted that the chip shortage had exposed this dependence on foreign suppliers as an Achilles heel of Deutschland AG.
While the VDA and BDI do not question the importance of free trade and open markets, both call on companies to face the downside risks of globalization and diversify supply chains. .
And that means bringing factories back to Germany or at least to the European Union’s single market, they say.
“When it comes to chip design, Europe is dangerously dependent on other regions,” Ploeger said, adding that European industry needs to regain lost skills with government support.
“European sovereignty for semiconductors is important in order to be able to react more flexibly to disruptions in supply chains and changes in consumption patterns.”
CHIP SHORTAGES IN 2022?
As global semiconductor production capacities are fully utilized, a significant short-term expansion in production is not an option and some analysts predict that the shortages could last into the next year.
“In the medium to long term, it is also in Europe’s interest to increasingly localize these technologies in Europe,” said Rotter of the VDA. “But it takes time and does not solve the current bottleneck problem.”
The problem is that the share of the German auto industry in the global semiconductor market itself is too small for full and profitable in-house production, he added.
In alliance with the executive of the European Union, the German Minister of the Economy Peter Altmaier and his French counterpart Bruno Le Maire plan to pour billions of euros into state aid schemes to support the construction of ‘local chip factories and the development of next-generation semiconductors.
As part of its efforts, the European Commission last month launched a 10-year plan, targeting a 20% global semiconductor market share and building a manufacturing facility capable of making ultra-chip chips. 2 nanometer rapid. Read more
On Friday, the European Commission, Thierry Breton, will meet the chief executive of chipmaker Intel (INTC.O) and a top executive at Taiwanese competitor TSMC as the EU seeks to protect the bloc from future shocks from the chain. global supply.
Breton seeks to persuade a leading chipmaker to set up a major manufacturing plant in the EU that would help achieve the Commission’s strategic goal of securing the most advanced chip production technology in the next decade.
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