Chip shortages expose Achilles' heel of Germany's recovery
BERLIN – Germany has boomed on the back of globalization, but now the worldwide web of supply chains that turbo-charged its economy could prove to be a critical weakness.
Shortages of semiconductors and other industrial components
are threatening to derail the country’s economic recovery, forcing executives
and policymakers to rethink supply lines and try to reduce reliance on a
handful of Asian and U.S. suppliers.
Automakers and electronics producers, in particular, are
being hit hard by manufacturing delays of chips, caused by a global shortfall.
This has become one of the biggest risks for Europe’s largest economy, on top
of a third wave of COVID-19.
The Ifo economic institute warned late last month that the
supply bottlenecks had become more widespread. The outlook is most precarious
for the manufacturing sector, which generates about a quarter of economic
output and is driving growth.
“The situation is very tense,” said Eckehart Rotter, a
spokesman for Germany’s VDA automobile association, adding that the
semiconductor problems affected car manufacturers and suppliers alike.
Due to the shortages of electronic components, in particular
the microcontroller chips crucial to modern vehicles’ functioning, production
lines had to be stopped several times for several weeks due to delivery delays,
Rotter said.
Volkswagen and Daimler are among the companies that have
been affected in the auto sector, the driving force of German manufacturing.
Industrial giant Siemens is also struggling to get enough semiconductors.
The problem has forced many companies to announce short-time
work and scale back production for the coming weeks, with the scarcity of
components also expected to lead to higher end-prices for consumers and overall
inflationary pressures.
The production cuts suggest that passenger car production in
Europe will miss forecasts in the first half of the year.
“This affects highly integrated microprocessors as well as
simple control elements,” the VDA’s Rotter said, adding that more than 1,000 of
such components are needed in some vehicles.
“The extent to which this deficit can be made up in the
second half of 2021 is currently still open. The situation remains critical.”
Semiconductor ‘sovereignty’
The global chip shortage stems from a combination of factors
including fallout from last year’s COVID-19 shutdowns and factories struggling
to meet demand for semiconductors which have become omnipresent in an
increasingly digitized world.
Automakers and suppliers rely almost exclusively on chips
from a few manufacturers, so-called foundries. They include Taiwan
Semiconductor Manufacturing Co. (TSMC), South Korea’s Samsung Electronics Co.,
GlobalFoundries, United Microelectronics Corp. and SMIC whose production sites
are located mainly in Taiwan, South Korea, China and the USA.
“There is hardly any other economy which has benefited as
much from globalization in recent years as Germany,” said Iris Ploeger, a board
member of the BDI industry association. But she acknowledged the chip shortages
had exposed this reliance on overseas suppliers as an Achilles’ heel of
Deutschland AG.
While VDA and BDI are not questioning the importance of free
trade and open markets, both call on companies to address the downside risks of
globalization and diversify supply chains.
And this means bringing back factories to Germany or at
least to the European Union’s single market, they say.
“When it comes to chip design, Europe is dangerously
dependent on other regions,” Ploeger said, adding European industry had to
regain lost skills with government support.
“European sovereignty for semiconductors is important in
order to be able to react more flexibly to disruptions in supply chains and to
changes in consumption patterns.”
Chip shortages into 2022?
Since global semiconductor production capacities are fully
utilized, a significant short-term expansion of production is not on the cards
and some analysts forecasts the shortages could last into next year.
“In the medium to long term, it’s also in Europe’s interest
to increasingly localize these technologies in Europe,” the VDA’s Rotter said.
“But that takes time and does not solve the current bottleneck problem.”
Further complicating the economics of such re-locating steps
is the problem that the German car industry’s share in the global semiconductor
market itself is too small for a complete and profitable in-house production,
he added.
In alliance with the European Union’s executive, German
Economy Minister Peter Altmaier and French counterpart Bruno Le Maire are
planning to pour billions of euros into state aid programs to support the
construction of local chip factories and development of next-generation
semiconductors.
As parts of the efforts, the European Commission last month
launched a 10-year plan, setting its sights on a 20% global semiconductor
market share and building a fabrication plant that can make superfast 2
nanometer chips.
On Friday, European Commission Thierry Breton will meet the
chief executive of chipmaker Intel and a top executive of Taiwanese competitor
TSMC as the EU seeks to shield the bloc from future shocks in the global supply
chain.
Breton is seeking to persuade a leading chipmaker to site a
major fabrication plant in the EU that would help realize the commission’s
strategic goal of securing the most advanced chip production technology over
the next decade.
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