Chip Shortage in Germany Will Take Years to Overcome

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A senior Audi executive has released warnings claiming the semiconductor shortages in Germany’s car industry will take years to alleviate despite chipmakers establishing factors in the country. The automotive industry took a hit during the global COVID-19 pandemic, as it led to chip shortages. Since cars use large amounts of chips, from brake sensors and steering the wheel to switching gears and using entertainment systems, Germany’s shortage issue will take a long time to resolve.

German executives and policymakers are creating new supply line strategies and reducing dependency on Asian and US chip suppliers.

“It takes years, after all. It’s about billions of dollars are being invested,” said Renate Vachenauer, head of procurement at Audi. She added that carmakers could prevent bottlenecks by reducing the varieties of chips used from 8,000 different vehicles.

Vachenauer said carmakers could prevent bottlenecks by reducing the varieties of chips used from the 8,000 different types of semiconductors Germany currently uses. “We have to use many levers to stabilize the supply of semiconductors and also stock up on the broker market to some extent,” she added.

In addition to reducing chip varieties, Vachenauer suggested alternative solutions and strategies to resolve the problem of chip shortages and stabilize the country’s semiconductor supply. She proposed incorporating stockpiling chips from the broker market, which transacts with the secondary market where excess or unused chips are traded. Buying and keeping chips from the broker market will allow car manufacturers to prevent future shortages. However, this strategy also raises concerns, such as increased costs and high risks regarding the quality and validity of brokered chips.

Berlin has been contacting the largest contract chipmakers worldwide using billions of euros as subsidies. Chipmakers and suppliers, such as US Intel (INTC.O) and Taiwan’s TSMC (2330. TW), plan to launch factories in Germany. Intel has also announced plans to build a semiconductor factory in the country.

TSMC said it would invest approximately $3.8 billion in setting up a factory in Dresden, the capital of the eastern state of Saxony in Germany, along with various other industrial partners. The company said establishing a factor in Dresden would mark a “significant step towards the construction of a 300mm fab to support the future capacity needs of the fast-growing automotive and industrial sectors, with the final investment decision pending confirmation of the level of public funding for this project.”

The German government also announced its plans to contribute up to $5.5 billion to the factory launched by TSMC.

However, despite the investments, new strategies, and revamping and enhancing supply chains, resolving the semiconductor shortage that has Germany’s automotive industry in a bind would persist for several years. Fixing the bottlenecks requires considerable investments, resources, and time to set up new chip factories and stabilize the supply chain.

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