Chip shortage is forcing automakers to catch up

All new Subaru cars are placed in a warehouse at Auto Warehouse Co. on May 14, 2021 in Richmond, California.

Justin Sullivan / Getty Images

The Canadian auto sector is at a crossroads as its recovery is hampered by a continuing shortage of semiconductor chips that has hit industries around the world.

Today’s vehicles contain between 30 and 50 chips, because every electronic component needs a semiconductor to function. These are the microchips that help power many functions and features of a vehicle. Automakers and their suppliers expect that number to increase as more vehicles become electrified and adopt self-driving technologies.

To date, the shortage has shown ripple effects. Statistics Canada data showed a 10.2% drop in vehicle and parts exports in February 2021 alone. This figure is significant given that the industry is worth $ 19 billion and directly employs around 129,000 people across the country according to Unifor, although Statscan data also shows that nearly 500,000 were employed in various automotive and automotive industries.

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To increase efficiency during production, automakers try to order only the supplies they need in the near future, a practice called “just-in-time manufacturing.” The massive rebound in demand for cars, coupled with fierce competition for chips from other industries such as consumer electronics, has led to a tight supply for the entire auto industry.

This is why many see the situation as an opportunity for Canada to reposition itself in the global auto industry and reduce its dependence on international suppliers.

“COVID-19 has demonstrated vulnerabilities and gaps in global supply chains, so I think we should frame [the chip shortage] as a demand opportunity and not as a constraint, ”says Melissa Chee, CEO of VentureLab, a technology incubator based in Markham, Ont. “Do we really want to be just the final assembly, or can we rethink the role we play in this final [chip] ecosystem? “

One way to find out is to work with the auto industry to find out if they would be willing to buy chips if they were developed and manufactured in Canada, she adds. This could mark a “strategic advantage” of being part of a North American supply chain that would reduce reliance on concentrated exports abroad.

Building manufacturing plants to make the chips would cost billions of dollars and take years to build, given their size, which could cover hundreds of acres, says Shawn DuBravac, president of the Avrio Institute, a consultancy firm that follows the tech industry.

The US government says it will try, while Intel plans to invest in increased manufacturing capacity in Arizona. Even Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest chipmaker, has said it will invest in manufacturing and development in the United States.

In the meantime, automakers are doing their best to make sure customers don’t have to pay a premium to sit in the driver’s seat of a new vehicle due to the flea race. Various automakers, including General Motors and Ford, and Tier 1 suppliers such as Magna International, declined to speak for this article, although they have indicated in emails that they are handling the shortage well. .

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“At the same time, they’ve sped up their orders, and there’s a lead time they face, which is an average of around 14 weeks to turn a manufactured wafer into a semiconductor,” says DuBravac. “Automakers are just trying to catch up with unexpected strength in orders, which they likely did not anticipate due to the pandemic.”

They are more likely to cut production than to shut down a product line, he adds. That could mean reducing the number of shifts in factories and focusing more on models with higher profitability and leaner inventory. In some cases, some promised functionality may also be removed.

This was the case in March 2021, when GM announced it was removing its fuel management cylinder deactivation technology on 2021 Silverado and Sierra pickups with a 5.3-liter V8 engine. Despite a lighter inventory in their product lines, he finds automakers unlikely to deviate significantly from their planned 2021 launches. Prices are also not expected to increase at dealerships due to supply issues. , he said.

Despite the uncertainty, chip developers in Canada, including D-Wave, 1QBit and others, are hoping this could be the turning point the domestic industry needed to gain more financial support.

Montreal-based startup Spark Microsystems Inc. has designed its own chip for vehicles that use ultra-wideband (UWB) technology to replace part of their car’s electrical wiring. The lower energy consumption would ostensibly increase the efficiency and power of the vehicle.

Spark chipsets are not found in any vehicle currently manufactured by an automotive manufacturer, nor in any part sourced from suppliers. Manufacturing the chips would require manufacturing plants outside of Canada, and for smaller players like Spark, which received patents for its designs in 2020, there is a balance.

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“Unfortunately, there is no magic in the way you manage the relationship you have with your contractors who build your chip,” says Frederic Nakbi, CTO of Spark Microsystems. “When you are a small customer, you have to order a year in advance, which leads to all the logistical nightmares, but you have no choice or you are not going to sell products.”

Bringing this reinforcement capacity closer to home would be beneficial, says Nakbi, as it would also reduce the wait time to manufacture and deploy chips. It would help to create larger manufacturing plants in Canada and expand existing plants to make the most state-of-the-art chips, he says. but he also argues that an equally effective solution would be to focus on semiconductor research and development, to compete with other markets for the “brains” that create the chips themselves.

“It’s no secret that there are chip design epicenters in Silicon Valley and other parts of the world,” he says. By comparison, Canada’s talent pool, while healthy, is not “large”. And beyond the automotive sector, semiconductor chips are also essential for the biomedical, telecommunications, education and science sectors, he adds.

Government funding to help the cause of chip development and manufacturing is still limited. Chee’s VentureLab has received federal funding of $ 9.73 million for its Hardware Catalyst initiative, Canada’s premier incubation hub for silicon startups and projects. It’s a drop in the bucket in the larger system, and she co-founded an advocacy and lobbying group called the Canadian Semiconductor Council to stimulate private and public investment.

“Our mantra is to build skills and make strategic bets as a country because Canada already wants to be a leader in EVs. [electric vehicle] North America’s battery space and supply chain, ”says Chee. “We know where we want to go; we know the automotive industry is undergoing a transformation and this shortage is our opportunity to understand that because we have all the expertise to do it.

Editor’s Note: An earlier version of this story indicated that VentureLab received $ 5 million in federal funding. The Globe regrets the error.

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