Semiconductor bottlenecks hit auto sector, VW, suppliers warn

BEIJING -- Volkswagen Group, along with German auto suppliers Continental and Bosch, on Friday warned about a shortage of semiconductor components needed for automotive production.

The pandemic has hit auto and auto parts production globally, and auto manufacturing has grown increasingly reliant on imported chips for electronic parts, such as electronic control units and electronic stability programs.

Production slowed down during hard lockdowns triggered by the spread of the COVID-19 pandemic earlier in 2020. But a strong rebound in China demand has led to a shortage of parts.

"Although semiconductor manufacturers have already responded to the unexpected demand with capacity expansions, the required additional volumes will only be available in six to nine months," Continental said on Friday. "Therefore, the potential delivery bottlenecks may last into 2021."

Volkswagen, the biggest foreign automaker in China, said China's overall auto production could be interrupted after the COVID-19 pandemic disrupted chip supplies globally for some electronic components.

"The chip supply for certain automotive electronic components has been affected due to uncertainties caused by the pandemic," a Volkswagen representative told Reuters in an emailed statement.

"This has led to a potential interruption in automotive production, with the situation getting more critical as demand has risen due to the full-speed recovery of the Chinese market," said the statement, which refers to China's overall auto production and not specifically to Volkswagen.

Bosch, the world's largest auto supplier, said it too was seeing supply chain bottlenecks for certain components.

"Currently there is a shortage of certain semiconductor components in global procurement markets, including the automotive sector," Bosch said.

"No supplier can elude this market development. We are in close contact with our suppliers and customers to maintain the supply chains as much as possible despite the tense market situation."

Dutch automotive chip supplier NXP Semiconductors has told customers that it must raise prices on all products because it is facing a "significant increase" in materials costs and a "severe shortage" of chips, according to a letter to its customers seen by Reuters.

"To address the unforeseen increase in costs from our suppliers, we reluctantly must raise pricing on all products," the Nov. 26 letter to the chipmakers customers said. NXP confirmed the authenticity of the letter but declined to comment further.

One senior industry official, who declined to be named, told Reuters that he expects the shortage of chips will continue to impact China's car production for a while and several international and local car companies will face production interruptions in the short-term but at different levels.

China is expected to sell over 22 million vehicles in the first 11 months, down just 3 percent from the same period a year earlier.

Volkswagen also said it was closely monitoring the situation and had already started coordinating with suppliers to take appropriate countermeasures.

VW has local joint ventures with SAIC Motor Corp., China FAW Group Corp. and Anhui Jianghuai Automobile Group Corp.