The car industry is losing $210B revenue in 2021 due to chip shortage. Having the lesson learned, Ford & GM both announced to step into the chip business in Nov. in their own ways. Welcome to the club, Ford & GM. Joining the AI-driven renaissance, the chip innovation just gets more exciting.
By now, the industry has creatively adapted most mitigation strategies, such as: dropping secondly features, prioritizing for high-value & building cars to wait for chips. Toyota even got “lucky” by adding buffer in the inventory in advance, the lesson learned from the earthquakes. So what could the industry do now to get lucky next time? Let’s extrapolate a bit further.
Increase supply
Ford takes this obvious strategy. In Nov., Ford teams up with GlobalFoundries to boost chip supplies for cars by advancing semiconductor manufacturing & development in the US. Together with 6 new fabs to be built by Intel, TSMC & Samsung in the US, the pendulum will swing to the over-supply end sooner or later. When it does, Just-in-Time renaissance will be a tending thing again.
Reduce complexity
GM takes another path by reducing the chips needed to simplify supply & inventory management. GM just announces a plan to work with Qualcomm & other 6 chip suppliers on 3 new families of microcontrollers to replace 95% of chips on future vehicles. Volkswagen has pursued a similar path to consolidate chip & SW suppliers under its platform. To take the strategy further, generalizing & standardizing the chips will significantly reduce the complexity of the supply chain & enable more competition.
Build resilient capability
Tesla is more resilient to the shortage because it can substitute chips by reprogramming the software timely. This is very different from other carmakers, which outsource that to their vendors. The problem is: vendors typically do not have the incentive or capability to do that. Sure, it may be better to use vendors for “the modular” parts of the business. But, the genius of Tesla is to foresee & control the critical pieces of software to enable swapping chips as needed.
Embrace software-defined
So, how may a car maker better control their own destiny? I would try to take control of the software development to commoditize the chips. Even it won’t be easy, but it’s achievable.
For example, a 5-year-old Fairphone 2 (FP2) can upgrade to Android 9 from Mar. And, Android 10 is on the way to FP2 in 2022. Consider this, FP2 uses Qualcomm Snapdragon 801 SoC, which does not support Android 7 by default. Regardless of any reason that an OEM could not provide an OS upgrade, Fairphone proves it’s possible for open-source when the OEM commits to. Kudos to Fairphone for going beyond Samsung flagships’ 3 years of OS upgrade.
Full Disclosure
The opinions stated here are my own, not those of my company. They are mostly extrapolations from public information. I don’t have insider knowledge of those companies, nor a whatever expert.
