Will rise in price of Automotive Chips affect the price of Upcoming Cars

Despite the fact that the shortage of automotive chips has eased, there is still a scarcity in the industry. Automotive chips can be categorized into three types based on their functions: computing power and processing, power conversion, and sensor chips. 

The first type includes AI chips for autonomous driving perception and fusion, as well as electronic control units for engine, chassis, and body control. 

The second type uses IGBT and other power devices for power conversion, while the third type utilizes sensor chips in airbags, tire pressure monitors, and other automatic driving radars.

As per recent estimates by some organizations, global vehicle output could be reduced by over 200,000 units in December 2022 due to the ongoing shortage of automotive chips. 

Additionally, as of December 4, the worldwide car market's production had decreased by approximately 4.186 million vehicles due to the lack of automotive semiconductors, according to the latest statistics from AFS, a business that forecasts data for the automotive sector. AFS also predicts that the global production of automobiles in 2022 will be less than 4.393 million.

According to media reports, negotiations have been ongoing for about a quarter between several foundries, including TSMC, UMC, World Advanced, GlobalFoundries, and others, along with several Tier 1 manufacturers and IDMs, regarding the 2023 foundry price for automotive chips. 

Based on the current status of these negotiations

It is expected that most automotive chip foundries will experience an increase in pricing in 2023.

The report also notes that while many automotive IDM manufacturers had initially sought to renegotiate contracts in order to increase the capacity of automotive chip foundries and maintain or reduce pricing, it is believed that achieving these goals will be difficult for most of them. 

This suggests that, despite efforts to address the structural deficit of automotive chips, prices are likely to remain high or even increase in the near future.

"In essence, the foundry prices for most car chips in 2023 have been successfully negotiated to meet the requirements of TSMC, UMC, World Advanced, GlobalFoundries, and other foundries without an increase from 2022 levels."

As for the second sentence, it can be rephrased as follows: "This implies that the cost of car chips is likely to rise in 2023, as most automotive chip foundries are expected to experience price increases. 

However, a study by Kynix suggests that the scarcity and high cost of automotive chips may persist for an additional two years because foundries are not motivated to enter the automotive market."

Regarding the shortage of automotive chips despite the high manufacturing capacity of wafer foundries like TSMC, UMC, World Advanced, and GlobalFoundries, the following sentence can be rephrased: 

"Why is there still a shortage of automotive chips when wafer foundries have a greater manufacturing capacity that can enable the production of more automotive chips, despite the decline in demand for consumer chips since 2022 due to the slow growth of the consumer electronics sector?"

There are two primary causes of this issue:

To begin with, semiconductor foundries claim that only a small percentage of the world's semiconductor chip production capacity, about 6-10%, is purchased by the automotive industry. Moreover, the profit margin for foundries in the automotive chip market is about 11% lower than that of consumer chips.

Additionally, converting a wafer foundry's process capabilities to produce automotive chips takes a minimum of 6 months, and it could take up to 2-3 years for the foundry to complete the verification process once the capacity has been confirmed by automotive clients.

However, even after the verification process is completed, foundries still face challenges in achieving the high yields needed to produce automotive chips in large quantities and at a profit, which leads to additional costs.

Overall, the shortage of automotive chips will likely persist due to the slow growth of wafer foundries in the automotive industry. Additionally, the cost of automotive chips may continue to rise.

How does price affect automobiles due to a shortage of chips and semiconductors?

The shortage of chips and semiconductors has had a significant impact on the automobile industry, which relies heavily on these components to manufacture its vehicles. As a result of the shortage, the prices of automobiles have been affected in several ways:

Higher prices for new vehicles: With the shortage of chips and semiconductors, the production of new vehicles has been significantly reduced. This has resulted in higher prices for new vehicles as demand outstrips supply.

Increase in used vehicle prices: As the price of new vehicles has risen, more consumers have turned to the used car market. This has caused an increase in demand for used vehicles, leading to higher prices in this market as well.

Decrease in vehicle incentives: Due to the shortage of chips and semiconductors, many automobile manufacturers have reduced or eliminated incentives for purchasing new vehicles. This has resulted in higher prices for consumers.

Reduced vehicle availability: The shortage of chips and semiconductors has also led to the reduced availability of certain vehicles. This has led to higher prices for these vehicles as demand exceeds supply.

Overall, the shortage of chips and semiconductors has had a significant impact on the automobile industry, resulting in higher prices for both new and used vehicles. However, it is important to note that the impact may vary depending on the region and market conditions.