On Friday, October 24th, the Motor & Equipment Manufacturers Association (MEMA), the largest automotive parts supplier association in the United States, stated that American car factories are only two to four weeks away from halting production due to the conflict involving Nexperia, a chip manufacturer, between the Netherlands and China. The three major American car companies have mentioned that they are working diligently to minimize disruptions as much as possible.
Nexperia is a crucial chip supplier for the automotive and consumer electronics industries. Concerned that Nexperia’s chip technology might be stolen back to mainland China by its parent company, Shanghai-listed Wingtech, the Dutch government announced a one-year temporary takeover of Nexperia at the end of September. This included prohibiting Nexperia and its subsidiaries from making adjustments to assets, intellectual property, business, and personnel within the year. The Dutch government specified that Wingtech’s CEO, Zhang Xuezheng, who also served as Nexperia’s CEO, violated the agreement, posing a threat to the economy and national security of the European Union.
In retaliation, China’s Ministry of Commerce declared in October a comprehensive restriction on the export of finished chips from Nexperia, causing concerns among European and American car manufacturers who depend on these products.
Steve Horaney, Senior Vice President of MEMA, mentioned, “Even a small shortage of these chips can lead to the entire assembly plant shutting down. While there are alternatives, they may not be able to meet all demands.”
The foundational chips produced by Nexperia are widely used in automotive electronic systems, controlling various equipment ranging from lighting, airbag systems, to car door locks and windows.
Although not advanced chips, due to their large production volume, finding alternative partners in a short timeframe is challenging.
This week, Nexperia notified its Japanese automotive clients that timely delivery might not be guaranteed anymore. Faced with the continuous tightening restrictions on critical manufacturing components by the Chinese authorities, the European automotive industry has been tirelessly seeking remedial measures.
Horaney pointed out that the chips supplied by Nexperia to the automotive industry utilize older technology, distinct from the new, faster, and more powerful chips used for handling complex functions like assisted driving. However, since these chips rely on older technology, there are not many companies producing them.
“There is not that much idle chip capacity in the market,” he remarked. “Replacing semiconductor chips is not as simple as replacing nuts and bolts.”
Ford Motor Company’s CEO Jim Farley described the Nexperia issue as a “political” matter, mentioning that he discussed the matter with government officials during his visit to Washington, D.C., this week.
“This is a problem faced by the entire industry,” Farley stated during the third-quarter earnings call on October 23rd. “Swift breakthroughs are crucial to avoid production losses across the industry in the fourth quarter.”
General Motors’ CEO Mary Barra also acknowledged the potential impact of chip shortages on production, telling investors during this week’s earnings call, “We are working around the clock with our supply chain partners to minimize potential disruptions.”
Stellantis NV, a Dutch-based automotive manufacturer, stated in an email that they are “working with Nexperia and other suppliers to assess potential impacts and devise mitigation measures.”