In our April 7and article, Vehicle sales continue to slump, my colleague Jeff Soble provided valuable insight into the current state of supply and demand issues affecting the automotive sector. In that article, Jeff noted how some manufacturers feel like they’re “riding a bit of a roller coaster due to fluctuating parts supply issues.” Of all the asset classes used in the modern vehicle, this is more apparent than the shortage of silicon semiconductors that has become the hallmark of disruption and market share acquisition.
In our article, Jeff highlighted how General Motors has improved its semiconductor offering over previous periods and relative to its competitors, which has seen it see significant market share acquisition in the truck segments. As with most cases of gaining market share in a mature market, this is a zero-sum game and it means that other manufacturers eventually lose market share. Although General Motors may have seen growth in market share and some standardization in semiconductor supply, this was not the case for other manufacturers around the world. Adding to this calculation the additional geopolitical disruptions that occurred in the first half of 2022, supply and manufacturing issues have only been exacerbated for many.
Porsche and Volkswagen Group’s BMW reported in March 2022 that supply disruptions caused by Russia’s invasion of Ukraine had negatively impacted their supplier’s ability to source wiring harness components. . As a result, both of these manufacturers experienced significant production delays and stoppages, in some cases leading to production interruptions. But wiring harnesses from Ukraine aren’t the only items affected by the Russian invasion: neon gas production is the next frontier of semiconductor disruption.
As I’m sure is news to many of us laymen, 45% to 54% of the world’s semiconductor-grade neon, essential for the lasers used to make semiconductors, comes from two Ukrainian companies, Ingas and Cryoin. Global consumption of neon, especially in semiconductor production, reached around 540 metric tons last year alone. As the Russian invasion unfolded, these two Ukrainian vendors closed as the Russian siege dug deeper into their country. The move heightened concerns about the semiconductor industry’s ability to ramp up semiconductor production as it recovers from COVID-related production constraints.
While many semiconductor manufacturers made “advanced preparations” and stockpiled neon, supplies were in many cases only intended to provide short-term coverage for moderate disturbances and long-term sustained disturbances. term will continue to impact the ability of the semiconductor industry to recover. In addition to this disruption, prices for neon supply from non-Ukrainian suppliers continued to rise, leading to higher raw material prices. Therefore, these additional price increases throughout the supply chain will inevitably trickle down to end products and their impact will not be lost on consumer wallets.
When you add to the mix that modern cars are ushering in Automotive 2.0 technologies, like electric powertrains, connectivity and autonomous features, a semiconductor shortage is one of the last things we want to experience. With smarter vehicles, there are several times more semiconductors than our traditional internal combustion vehicle. But all is not lost on the ability of the vehicle supply to standardize. While some manufacturers expect the entire semiconductor shortage to continue into 2024, semiconductor production capacity has returned to normal capacity and with that many expect to see signs of supply normalization by the end of 2022. Of course, trying to predict anything in the modern automotive sector is a wild ride. That said, the 2020s so far have shown that the automotive sector is now more resilient and innovative than ever.