Will 2021 be the most critical year regarding the supply problems that hit car manufacturing industry?

{{ brizy_dc_image_alt uid='wp-40cd868200c8f1b3315113018e2e4260.jpg' }}

Guillaume Profitt

Technology Analyst

Will 2021 be the most critical year regarding the supply problems that hit car manufacturing industry?

Over the last few weeks, the biggest car manufacturers in the world have been forced to close or slow down the production in some of their factories. One could think that this is due to a lack of demand in the context of the COVID-19 crisis; in fact, the reason is a penury of semiconductors. These chips are everywhere, not only in car manufacturing: essentially, any product that features electronics components uses them to an extent.

While this shortage is due to both an increased demand of IT devices with most companies in the world shifting to remote work, and the temporary closures of the main production sites because of COVID-19, it does highlight a wider problem: Europe is dependent on the rest of the world for its supply in micro conductors. The 10 biggest semiconductor company are American, Korean, Taiwanese or Japanese. Combined, the three biggest European manufacturers only make up the 4th biggest manufacturer. The EU has considered the problem and through the voice of its Commissioner for Internal Market, Thierry Breton, announced a plan to reduce Europe’s dependency for semiconductors. But Europe must go further than that, and develop a strategy to not only assure its sourcing, but to become a leader in the semiconductors market.

Indeed, European countries have all the factors necessitated for a successful deeper dive into this market.

With the high level of automation of foundries, the biggest part of the workforce in a micro conductor company is now dedicated to engineering; these jobs necessitate highly qualified engineers, that European countries have plenty of. R&D is logically the biggest spending for these companies, and thus require stable and large source of capital to operate efficiently; again, European countries have among the biggest financial markets in the world, able to provide the necessaries liquidities. This is also a level at which the EU can intervene by setting up incentives towards these investments.

Sure, the rest of the productions lines is still located outside of Europe most often, but does that means that modern transportation of relatively compact products wouldn’t be enough to overcome this obstacle? I do not think so: in fact, the EU’s exchanges with China alone amounted for 383.5 billion euros last year, proving yet again the ease of mobility of goods and services in our modern world.

In fact, this distance between the semiconductors production and most of the industries that use them as intermediate consumptions is not in itself definitive. The relocalization of a part of the engineering and industrialization of theses chains of production would work as an incentive for the transfer of other parts in these chains. It is thus reasonable to expect at medium term the emergence of new European actors in many other markets linked to the semiconductor industry, as a side effect of this micro-conductor policy.

In short, this case has a lot in common with the history of Airbus as a European project: a notable industry already present in the member states, but which falls short of dominance; the skilled workforce required for the technical progress on these products and market set to become one of major importance, not only in itself, but also for its symbolic and political impact. It seems therefore reasonable to hope for a comprehensive plan for the development of a stronger semiconductors industry in Europe, be it through an assistance to the current European actors, or by creating a pan-European enterprise, whose objective would fall perfectly in the objectives of the Next generation European Union Plan, agreed upon on the 21st of July 2020.