A recent study by IDTechEx in its new market report, "Power Electronics for Electric Vehicles 2022-2032", explores the importance of inverters in achieving greater electric vehicle range and market differentiation.
However, fundamentally, the power electronics industry relies on a transition to a new and elegant semiconductor technology, and even without it, it drives demand for semiconductor content per electric vehicle approximately 2.3 times greater than that of internal combustion engine vehicles. Is electrification sustainable amid a semiconductor shortage?
The root of the shortage (and why the automotive sector is particularly sensitive)
The automotive market was one of the industry's biggest losers. In 2020, demand for new cars plummeted: sales fell 15% year-on-year, due to changes in consumer needs related to travel, job insecurity, and factory closures during lockdowns.
The problem is that semiconductor foundries need to operate as continuously as possible due to the consequences of disruptions and lengthy startup times, which last weeks or months and erode profits. Inevitably, even though demand for automobiles declined in 2020 and automakers postponed or canceled orders, the slack was quickly redirected to other sectors and has not been so easy to channel back.
In 2021, demand from other sectors (induced by Covid or not), such as smartphones, cloud computing, or data mining, has not yet eased, and the crisis has worsened with delivery times for key parts such as microcontrollers reaching 44 weeks.
In April, Ford estimated it would sell 1.1 million fewer vehicles due to the shortage, and last month, Toyota, which had been drawing on its reserves, also reduced production.
The problem is further compounded by the concentration of the supply chain, which creates a single point of failure. When we think of computer chips, many companies come to mind: Intel, Apple, NVIDIA, Qualcomm, AMD, but few of them actually manufacture them.
In fact, most production is outsourced to foundries in Asia, where Taiwan Semiconductor Manufacturing Company (TSMC) holds nearly 60% of the market share, based on its revenue. The lack of companies capable of manufacturing chips, and the lengthy lead times for switching suppliers, are holding automakers back.
Impact of semiconductor shortages on electric vehicles
It is difficult to predict the impact of the chip shortage on electric vehicle markets. Unlike the global automotive market, electric vehicle sales grew steadily throughout 2020 with year-on-year growth of approximately 40%; this growth continues this year, and sales are on track to reach 5 million in 2021.
What's remarkable is that electric vehicles require more semiconductor content than internal combustion engine vehicles. By 2022, based on current trajectories and assuming no supply constraints, we estimate that electrification in the automotive sector (BEV, PHEV, FCEV, HEV, 48V) will demand an additional $7.4 billion in semiconductor material compared to a scenario without electrification.
However, although electric vehicles are a massive growth sector for the semiconductor industry, the growth is driven by power electronics, while the current shortage mainly affects microcontrollers (MCUs).
Furthermore, the continued growth of electric vehicle markets through 2020 means that automakers are less likely to cancel electric vehicle components, at least to the same degree as internal combustion engine cars, and electric vehicles have been able to avoid some of the impact.
Tesla says it largely managed the crisis in 2021 by creating new microcontroller designs and switching microcontroller suppliers; its sales have remained strong. Less established electric vehicle startups are faring worse, but they typically operate in high-end or low-volume sectors. For example, Nikola has delayed the launch of its FCEVs, but this represents a loss of fewer than 100 units in 2021.
The electric vehicle market will be affected, but IDTechEx doesn't believe it will stop growing. There is light at the end of the tunnel, and Ford says, "We see the second quarter [2021] as the low point." In fact, IDTechEx believes gradual improvements will occur through 2022, largely dependent on cooling demand in the phone/laptop/home office technology sectors rather than foundries' long-term capacity expansion plans.
