Japanese Parts Paralysis: Lack Of Chips For Cars Can Cost $76 Billion

Bertel Schmitt
by Bertel Schmitt
japanese parts paralysis lack of chips for cars can cost 76 billion

When we worked on the Phaeton launch in 2001, we said it had “more computers than a small company.” It had 56. Today’s cars have anywhere between 30 and 100 computers on board. They are small microcontrollers that typically chat with each other via a CAN bus. You don’t take just any microcontroller for the job. They need to hold up to the harsh environment inside of a car. Their makers need to hold up to the harsh environment presented by the purchasing departments of automakers that squeeze them for every penny. As a result of both, there are only a few players in this field. This is the story of one of them.

The largest manufacturer of automotive microcontrollers is Renesas, followed by Infineon, STM, Freescale and Bosch.

Renesas controls about 41 percent of the global market for automotive microcontrollers, says Automotive News [sub]. EE Times gives them only 11 percent. But all agree, Renesas is the largest in the automotive field. The world’s largest automaker, Toyota, is said to be the largest customer of Renesas.

Renesas, which had merged with NEC Electronics, has 90 percent of its global capacity in Japan.

If you want to relive how the chip giant was battling with the damage caused by the earthquake and tsunami, how they coped and cope with the power outages, then you find the blow-by-blow here.

From the first notice on March 14, the Monday after the quake (7 out of 22 factories down, 8 impacted by power outage) to the last one from just two days ago. In this notice, you see that Renesas is slowly getting back to normal, except for one fab: The Naka fab, in Hitachinaka-shi, Ibaraki Prefecture . This plant is listed as “Temporarily shutting production.“ The plant is down for the duration, tentative target date for re-opening: July 2011. Or thereabouts.

The trouble is, fate wanted it that “Renesas’ Naka plant in northeastern Japan accounts for about 25 percent of its global automotive microcontroller capacity,” says Automotive News. If the world’s largest supplier of automotive microcontrollers loses a quarter of its capacity, someone will get hurt.

According to AN, Renesas will most likely shift production from Naka to other Renesas fabs in Japan or Singapore. And now digest this quote from the report:

“But that transfer will account for less than half of Naka’s output, and it could be another two months before production starts up at those sites.

The manufacturing process for microcontrollers, or MCUs, can take up to two months, meaning that it could be another four months before those new sites are sending finished products to customers.”

Renesas thinks it can fill “approximately 70 percent of the customer orders currently in place with the Naka factory that are requested to be delivered by the end of May, from the finished goods already in stock and work-in-process goods in the assembly lines.”

After that, Renesas President Yasushi Akao is hoping for the “kind understanding and support” from his customers.

This little spotlight shows that things are not as clear cut as they appear. Nothing happens for a while. The first impact from Naka will be felt in June, when 30 percent of the orders remain unfilled. The second impact will hit when the deliveries are used up, and new chips won’t be flowing until September. These are no chips you can order from the Digikey catalog. These are specialized chips for special applications. Sourcing them from another manufacturer would take even longer.

Last night’s 7.1 magnitude aftershock left four Renesas fabs in northern Japan without power, says Reuters. It is unclear when production will be restarted.

And this is just one out of many suppliers.

Update: The Japanese government just chimed in (via The Nikkei [sub]: If production of the “key automobile component”, (namely the microcontrollers) “does not resume for the six-week period through the end of April, it could result in a loss of around 6.5 trillion yen for auto manufacturing worldwide, according to the government estimate.” According to my calculator, that is $ 76.4 billion. The reader of the above knows by now: At least 25 percent of the supply will be missing for a while.

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  • Philosophil Philosophil on Apr 08, 2011

    Interesting stuff, Bertel. This really helps to illustrate how complex such things as automobile production have become, and how dependent current production practices are on everything working together perfectly all the time. Market pressures have caused the production process to become so strongly oriented towards maximizing efficiency (in the reduction of costs and so on) that things seem more and more to be run on the almost irrational hope that nothing will ever go wrong. As a result, processes become increasingly specialized and inflexible. It's great when it works, but when something goes wrong, it's crisis management time.

    • SimonAlberta SimonAlberta on Apr 09, 2011

      Market pressures? Surely these have existed since Henry rolled out the Model T, if not before? Otherwise your comments are right on the mark.

  • PenguinBoy PenguinBoy on Apr 08, 2011

    While I don't doubt that "These are no chips you can order from the Digikey catalog. These are specialized chips for special applications.", it shouldn't be that hard to move production to a different foundry. The chips themselves may be somewhat specialized, but they are most likely made with standard processes and design rules. I would think it would be easier to second source chips than the big heavy greasy parts of a car. If the power in Japan is going to be spotty for a while, I can see production of these components moving to fab shops in places like Singapore or Taiwan. There might be some short term supply issues, but I don't see this one dragging on for months...

    • See 1 previous
    • PenguinBoy PenguinBoy on Apr 09, 2011

      @John Horner I did work in the semiconductor industry back in the '80s, but most of my electronics manufacturing experience has been with board builds and box build for OEM and EMS companies. I don't want to imply that you can pick these processes up and move them with a finger snap, but in most cases I would expect it is a matter of months, not years. While I don't have any first hand experience with bringing new power generation capacity on line, my understanding is that this is typically an expensive, multiyear proposition. If supply continues to be constrained by limited power, I would expect to see at least some fabrication moved to other fabs. Once it moves, it is unlikely to move back - so in this way I expect that this natural disaster will lead to further hollowing out of the Japanese economy.

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