Source: IHS, 2021-09-17
The IHS Markit light-vehicle production forecast has been cut by 6.2% or 5.02m units in 2021, and by 9.3% or 8.45m units in 2022, to stand at 75.8m units and 82.6m units, respectively. For 2023 we have reduced the forecast by 1.05m units or 1.1% to 92.0m units; this is a front-loaded adjustment and from the second quarter we expect output levels will be able to accelerate as supply chains return to normal. If this is the case, then strong pent-up demand and the pressure to rebuild stock levels is expected to support elevated levels of production in 2024 and 2025, with 2024 now forecast to hit 97.3m units, up 3.2% compared to the previous forecast and 2025 forecast at 98.9m units an increase of 2.4%. This is the largest single adjustment to the outlook in what has been a turbulent past nine months.
We estimate that 1.44m units of production were lost in the first quarter of 2021 and a further 2.60m units in the second; currently, third-quarter losses are running at 3.1m units and rising. The outlook for the fourth quarter now reflects heightened risk as challenges to the supply chain – primarily semiconductors – remain entrenched. Recently Toyota communicated that it will be reducing build targets in October, following the announcement of a 40% cut to the September plan and this is symptomatic of the ongoing volatility in the sector and the continued lack of visibility beyond the very short term. Surveys of clients in the semiconductor sector since the summer are confirming concerns for the outlook. There is progress in some areas: The recovery of operations in Texas and at Renesas Naka 3 has improved the availability of 40nm MCUs on 300mm wafers.
Efforts of MCU vendors, initiated in the fourth quarter of 2020, to increase their in-house capacity are starting to have an effect.
TSMC has increased its allocation to automotive. GlobalFoundries has increased its investment plans with new capacity for 12–90nm in 2022.
However: Front-end capacity for 200mm wafers supporting >40nm MCUs continues to be tight. This includes analog, sensors and low and mid-range MCUs. Cars need all of these. Lead times on all new fabrication equipment have increased. Demand outside the automotive sector remains strong. Back-end capacity (packaging and testing) has been getting worse through the third quarter. Lead frames, substrates and resins were in tight supply during the MCU shortages and this situation is aggravated by lockdowns measures affecting Malaysia and other Southeast Asian countries.
Lead times for the equipment that makes components for assembly and testing is beyond 40 weeks. Inflated demand continues, postponing a return to balanced supply-demand. Therefore, suppliers are hesitant to make capital investments based on inflated demand. Stockpiling to build up inventory in mainland China in response to sanctions imposed before 2020.
The shape of the crisis and recovery is now characterised as follows, assuming no significant extraneous shocks: First-half 2022 semiconductor lead times will stabilise but will continue to be 26 weeks and longer. Longer firm order windows will not guarantee that the supply chain can meet quantities or schedules. Second-half 2022 lead times will improve, but will still be longer than normal. First-half 2023 continued improvement, additional wafer fabrication capacity comes on-line and lead times improve further. Supply chains can keep up with ongoing demand. The second half of 2023 brings continued improvement within the supply chain progressing to address missed backlog and consistently meeting customer quantity and schedule requirements.
So what are the factors behind such a sizeable downgrade? In the first half of 2021 the primary cause of disruption was the shortage of front-end wafer fabrication for microcontrollers (MCU). This was the particular supply chain that was dented by the ice storm in Texas and the fire at the Renesas Naka 3 facility in Japan. In addition to these events that compounded difficulties in an already constrained supply chain, we began to recognise an issue emerging in early June, which was affecting what are described as back-end processes (packaging and testing) within the semiconductor sector. The back-end issue is focused on operations located in Malaysia and is in direct response to the government’s rolling programme of lockdown measures. First scheduled to expire by the end of June, the measures were extended through the middle of August and the return to full operational capacity is now not expected until late October.
We see this back-end disruption as most influential to what we now expect in the remainder of 2021. The two-and-a-halfmonth backlog that has built up since June will take time to clear, and is anticipated to extend well into 2022. So, our interpretation of the situation in Malaysia, which is responsible for 13% of the global supply of semiconductors for the automotive industry, has become more pessimistic. In addition to the extended cycle of lockdowns, which in turn have reduced the possibility of any improvement in this calendar year, the back-end situation has also affected a wider range of semiconductor applications beyond just MCUs.
If the first half of 2021 was defined by front end issues disrupting automotive MCUs, then the second half 2021 and the coming months will be increasingly defined by back-end issues affecting all semiconductor applications and not just automotive. This wider disruption beyond automotive is contributing to the reduced expectations for both 2021 and 2022, signalling that even without further external shocks, levels of capacity dedicated to automotive will remain below those required to meet ongoing demand and well below what would be required to allow stock levels to be rebuilt. Ongoing imbalances between supply and demand of semiconductors are now expected.