Mon. Sep 26th, 2022

The capacity for analog chips is expected to grow, but it
is unlikely to be sufficient to meet the increased demand for chips
in cars; therefore, the supply may tighten again around the end of

The automotive semiconductor supply tightness will likely ease
in 2022 and in the first half of 2023. However, there is a risk of
pressure points building up again at the end of 2023 or early 2024.
According to IHS Markit’s analysis, new concerns are emerging over
the supply of analog chips. After microcontrollers (MCU) in 2021,
analog chips are likely to become the main constraint for vehicle
production for the next three years.

The two major chip categories that have been most affected by
shortages are MCUs and analog chips. Earlier in 2021, MCUs received
all the attention. The proprietary nature of MCUs made it virtually
impossible to have dual sources of MCUs for an electronic control
unit (ECU) because of software and pinout differences at a minimum.
MCUs are manufactured on process nodes typically above 40
nanometers (nm), with some of them now starting to be processed at
28 nm. As memory and system-on-chips (SoCs) have captured more of
the semiconductor market share, investment has been concentrated
more on the advanced nodes to support growth in those areas and
less has been focused on mature process nodes.

There is an ongoing trend toward centralization of the
electrical/electronic (E/E) architecture, and it would result in a
smaller number of MCUs per vehicle. However, migrating to new
architectures and smaller process nodes is not beneficial for all
types of chips. For example, demand for analog chips will continue
to increase independently of new E/E architectures since they are
an essential part of many vehicle systems. Hundreds of analog chips
are required per car. All the following require analog chips: power
management of every ECU and SoC, signal conditioning for sensors,
bus transceivers for every ECU, drivers for each electric motor (up
to 100 in luxury cars), LED lamps, displays, radar transceivers,
high-end audio systems, and radio frequency (RF) front ends.

Now that the supply of MCUs is in a better shape, analog chip
supply is emerging as an issue. Analog chips typically use mature
chip processes, e.g., 90 nm to 300 nm. There are technical and
commercial reasons why these will continue to be produced at mature
progress nodes and not at leading-edge process nodes.
Unfortunately, the demand for analog chips is also increasing for
mobile phones—for the RF front-end, the sensor processing, the
high-end audio, and the contactless payment, to name a few.
Considering the growth in vehicle segments and propulsion mix, the
average number of analog chips per car is expected to increase by
26% in 2023 compared with 2021. This growth can be mainly
attributed to the ongoing electrification trend.

There is a front-end capacity deficit for mature process nodes
as most of the investment goes toward more advanced nodes.
According to our analysis, out of the total capital expenditure
announced in 2021 and 2022, 86% is directed at advanced
technologies requiring just a few chips in the car, while only 12%
is for the mature process, which is used to produce more than 90%
of the chips in the car. With the increase in demand for analog
chips, irrespective of the change in E/E architectures, this
imbalance in announced capital expenditure could cause future
bottlenecks for analog chips and other legacy nodes.

Short-term outlook for light vehicle

The expected shortage in analog chip supply will have a negative
impact on light vehicle production. However, in an optimistic
scenario, a decline in demand for analog chips by other industries
could result in an improved foundry capacity allocation for the
automotive industry. Under this scenario, it is also assumed that
the output of analog fabs will continue to increase at a similar
pace in the first quarter of 2022 through the third quarter of 2022
before slowing down. In such a scenario, analog chip production
capacity added per quarter will peak by the fourth quarter of

Steady demand for analog chips from other industries could
stabilize the capacity allocation for the automotive industry. This
is considered a conservative scenario. This scenario also
anticipates the output of analog fabs to increase at a normal pace
from early 2022. The amount of analog production capacity added per
quarter will flatten by second-quarter 2023. In the median
scenario, the estimated year-on-year increase in analog chip
production will be 18% in 2022 and 13% in 2023.

To analyze the impact on car production, this capacity is
converted into the maximum number of cars that could be built in
2022 and 2023. This shows a potential ceiling for car production of
around 24 million units per quarter from the third quarter of 2022
onward and a decline in car production from the end of 2023 to
early 2024. Predominantly, this can be attributed to the expected
growth in the number of chips per vehicle in the next few years. In
comparison with 2021, the average number of analog chips per car is
going to be much higher in 2023. The available extra capacity is
insufficient to meet the fast increase of analog chips in cars,
driven by ongoing trends such as electrification and a higher
number of infotainment and advanced driver-assistance systems
(ADAS) features.

The semiconductor chip capacity will grow, but hardly fast
enough to meet the increased demand for analog chips in cars. After
MCUs in 2021, analog chips are likely to become the main constraint
for vehicle production in the next three years. The number of
analog chips per car increases faster than MCUs irrespective of
propulsion type, sales segment, and E/E architecture. These analog
chips are also in high demand in many other industries such as the
smartphone and consumer electronics industries.

Current capital expenditure and capacity trajectory show that
situations might improve for the automotive industry in 2022 and
early 2023. A supply tightness may be formed toward the end of 2023
or early 2024. This is dependent upon several parameters, such as
capacity growth for mature nodes, the analog fab capacity
allocation for the automotive industry, and demand for analog chips
by other industries. In the coming years, considering the efforts
by various players in the automotive ecosystem, there could be more
investments for the expansion of analog capacity to lift the
potential ceiling for car production. Automakers are working on
establishing better visibility to the semiconductor supply chain by
forming more direct relationships with foundries. This could result
in improved capacity allocation for the automotive industry and
improved vehicle production capacity in 2023 and beyond.

Jeremie Bouchaud – Director, Autonomy, E/E & Semiconductor, IHS
Hrishikesh S – Research Analyst, Automotive, IHS Markit

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