SHANGHAI, Oct. 22, 2021 /PRNewswire/ -- Cango Inc.
(NYSE: CANG) ("Cango" or the "Company") is issuing a bi-monthly
industry insight publication called "CANGO Auto View" to bring
readers, drivers and passengers up to speed on the automobile
market's emerging trends.
Below is an article from the Company's 5th edition for
September 2021.
Auto Industry Faces a Chip Squeeze
The Covid-19 pandemic has wreaked havoc in the global supply
chain and created shortages across all industries, including a
semiconductor chip shortage. The automobile production industry was
hit particularly hard by this shortage, the latest wave of which is
attributable to several factors including Covid-19. In addition to
capping automobile production and sales, the "chip squeeze" is
deeply affecting the whole auto industry chain in China. Chip shortages since July 2021 have caused greater disruptions than
those during last year or last quarter.
Disruptions to Imports and Manufacturing
Automakers around the world are scrambling to manage the chip
shortage issue, which has persisted since early 2020 without a
proper solution to date. According to a non-exhaustive survey, more
than 30 auto manufacturing factories stopped production this year.
In addition, Kia, a traditional auto OEM brand, announced that it
will stop production in its US factory. Kia was forced to stop
production in early May 2021 due to
the chip shortage. Given the severity of the shortage, it is no
surprise that even strong traditional auto brands are having
difficulty coping with the challenges.
Industry experts generally believe that the latest round of
Covid outbreaks in Malaysia are
responsible for the most recent wave of chip shortages.
Malaysia is the largest chip
production base in Southeast Asia
and plays an important role in the global chip industry. More than
50 global chip companies, including Infineon, Intel, ASE,
STMicroelectronics, Huatian Technology, Tongfu Microelectronics,
Suzhou Good-ark (Chinese companies), Inari, MPI, Unisem,
Globetronics have packaging and testing plants in Malaysia. Other companies, such as Renesas and
Global Wafers, operate wafer plants there.
Publicly-available information shows that Malaysia accounts for as much as 13% of global
chip packaging and testing capacity, and the Covid outbreaks there
further strained the already-reduced auto chip supply. Chinese
automotive chip manufacturers have received notices requesting
production line staffing reductions to assist pandemic prevention
efforts. Local automotive multilayer ceramic capacitor (MLCC)
production lines, including those of AVX and Murata, have also
encountered pandemic-related production restrictions.
At present, China's domestic
companies with production and design capabilities include BYD
Microelectronics, Unigroup Guoxin Microelectronics, Black Sesame
Technologies, SemiDrive Technology and Horizon Robotics, with
relative specialties in production, design, and algorithms. Due to
the small proportion of local production capacity, less than 10% of
the auto-grade chips in China are
sourced locally.
Limitations on the availability of raw materials are creating an
additional bottleneck in the local supply of automotive chips. For
instance, KrF photoresist is an important material for the
manufacture of 8-inch and 12-inch wafers commonly used in
automotive chips. Industry experts believe that the quality of
photoresist determines the precision and yield of chip
manufacturing. The photolithography process accounts for about 30%
of the total cost of the entire chip manufacturing process, and
about 40%-50% of the total manufacturing time. Moreover,
photoresist has a shelf life of just six to nine months, limiting
storable inventory. Due to high technical barriers and strict
process requirements, China
largely depends on imported high-end and high-quality krypton
fluoride (KrF) photoresist for its domestic chip manufacturing.
Chip manufacturing involves a huge and complex industry chain,
and proprietary core technologies belong to an array of global
players. The U.S. dominates software design, the Netherlands has the lithography machine
technology, and Japan has the
photoresist technology. Japan has
a virtual monopoly on the photoresist market because Japanese
companies, including JSR, Tokyo Ohka Kogyo, Shin-Etsu Chemical and
Fuji Electronics, account for more than 83% of the global market
share.
Shin-Etsu Chemical recently notified several top fabs in
mainland China that due to reduced
KrF photoresist production capacity and the demand surge caused by
the global expansion of fabs, their supply of KrF photoresist is
limited. It also suspended shipments of KrF photoresist to some
small and medium fabs. As a result, domestic fabs such as SMIC,
Huahong and Silan Integrated Circuit will be in short supply of KrF
photoresist.
According to research institutes, China is home to approximately 14
photoresist-related companies and photoresist manufacturers. Fewer
than seven have achieved mass supply, including Beijing Kempur,
Suzhou Ruihong, Weifang Suntific, Jiangsu Aisen Semiconductor, and
Jiangsu Hantuo. They focus on producing UV negative/positive
photoresists and i-line and g-line photoresists. The local sourcing
rate for high-end KrF photoresists is less than 1%, from companies
including Beijing Kempur, Fujian Hongguang Semiconductor, Jiangsu
Hantuo, and Shanghai Core Carving Micromaterial Technology, among
others. Until domestic manufacturers increase their production of
KrF photoresist, these supply disruptions will persist.
Deeper Issues at Play
If we look beyond the global pandemic and geopolitical changes,
we see that the automotive-grade chip shortage is also due to chip
manufacturers' unwillingness to prioritize the auto industry's chip
needs, an issue that will have to be addressed with a different
strategy. Automotive-grade chips account for just 10% of the global
semiconductor chip market, which totals an estimated US$300-400 billion. Automotive chips do not
require top-notch process technology, but they must meet higher
safety and stability standards compared to industrial-grade chips
and consumer-grade chips. Therefore, when chip manufacturers'
supplies and production capabilities are limited and companies from
various industries must compete to have their chip orders
prioritized, automakers and auto parts suppliers are in a
relatively disadvantaged position given their smaller proportion of
orders and high safety requirements.
To address this issue, China's
Ministry of Industry and Information Technology set up a working
group for the promotion and application of automotive
semiconductors. They met with local governments, vehicle companies
and chip companies to formulate targeted measures to improve the
automotive chip supply. The State Administration for Market
Regulation also announced that it will investigate auto chip
distributors suspected of bidding up prices based on price
monitoring and clue collection. Supervision and law enforcement
will be strengthened in the future, to strictly prohibit and punish
illegal activities such as hoarding, price rigging, and
collusion.
These measures will improve the situation, but the chip
manufacturing process from R&D to mass production is so lengthy
that the benefits will only take effect in the medium to long
term.
Coping Strategies for OEMs
Automotive-grade chips' long supply cycle creates unique
challenges for OEMs. Unlike other auto parts, chips require three
to four years to move from R&D to dealer coordination and proof
of reliability. Changing suppliers strains the software
capabilities of car companies, limiting its practicality, and is an
ineffective solution in the face of industry-wide shortages.
Industry leaders are looking for long-term, effective
alternatives. Dong Yang, former
standing vice-chairman and secretary-general of CAAM and vice
chairman of China EV100, said,
"The way to reduce costs in the past was to produce globally and
sell in larger markets, so that manufacturing could be completed in
low-cost places and zero inventory could be achieved. However, this
method has proven problematic. We must consider the impact of
global disasters and geopolitics and localize productions closer to
their end market. It is not about manufacturing with the lowest
cost, but diversifying production among more countries, as long as
prices can absorb the cost increases. We should also maintain an
appropriate level of inventory instead of pursuing zero
inventory."
When Will it End?
At present, the chip crisis directly impacts OEMs' daily
operations. IHS Markit, a market research company, released its
latest report on August 19, 2021. It
forecasts that the chip crisis will cause a production reduction of
6.3 to 7.1 million vehicles (excluding Toyota) in 2021, and that
the semiconductor shortage will continue through the first quarter
or possibly even the second quarter of 2022.
The China Automotive Technology & Research Center's data
company created a projection model for the shortage according to
its relevant knowledge and professional analyses. Based upon this
model, the company mentioned in its April
2021 industry service report that "the shortage of
automotive chips will not be effectively alleviated by the end of
2021 and the production of passenger vehicles will be forced to
reduce by about 10% throughout the year." The company has
maintained this view in subsequent monthly reports.
While there is no clear end in sight to the worldwide chip
shortage, the entire auto industry is working along with the
government to develop effective strategies to solve this complex
problem and ensure future stability.
About Cango Inc.
Cango Inc. (NYSE: CANG) is a leading automotive transaction
service platform in China
connecting dealers, financial institutions, car buyers, and other
industry participants. Founded in 2010 by a group of pioneers in
China's automotive finance
industry, the Company is headquartered in Shanghai and engages car buyers through a
nationwide dealer network. The Company's services primarily consist
of automotive financing facilitation, car trading transactions, and
after-market services facilitation. By utilizing its competitive
advantages in technology, data insights, and cloud-based
infrastructure, Cango is able to connect its platform participants
while bringing them a premium user experience. Cango's platform
model puts it in a unique position to add value for its platform
participants and business partners as the automotive and mobility
markets in China continue to grow
and evolve. For more information, please visit:
www.cangoonline.com.
Media Contact:
Juliet Ye
Cango Inc.
Tel: +86 21 3183 5088 ext.5581
Email: pr@cangoonline.com
Twitter: https://twitter.com/Cango_Group
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SOURCE Cango Inc.