Volkswagen looks at direct buying to secure scarce chips

A new logo of German carmaker Volkswagen is unveiled at the VW headquarters in Wolfsburg, Germany

Volkswagen is looking into buying chip supplies directly from manufacturers, according to a company executive, as automakers battle a global semiconductor shortage.

“We are thinking about entering direct contractual relationships,” said the executive, who declined to be named.

“The industry will have to react due to the significance of semiconductors with regard to vehicles today.”

Automakers around the world are adjusting assembly lines due to the shortages, caused by manufacturing delays that some semiconductor makers blame on a faster-than expected recovery from the coronavirus pandemic.

Volkswagen, which warned as early as Dec. 4 about the problem, currently sources chips via major suppliers such as Bosch and Continental and has no direct contractual or supply agreements with semiconductor makers.

Carmakers also affected by the shortage include Ford, Toyota, Nissan and Daimler, with the companies having to cut production or planning to reduce working hours due to the disruption.

Volkswagen is currently in multi-party talks with its main suppliers, chipmakers and wafer makers to address the issue, the executive said. “We must ensure that wafer and semiconductor makers know our needs.”

In 2019, automotive groups accounted for roughly a tenth of the $429 billion semiconductor market, according to McKinsey, with NXP Semiconductor, Germany’s Infineon and Japan’s Renesas among key suppliers to the sector.

The executive said that even though it was still unclear what exactly caused the bottleneck, it was crucial not to rely on just one supply path, potentially breaking with a tradition to source chips only via top automotive suppliers.

Solutions could include increasing stocks, as chips don’t take up as much storage space as other automotive components, the executive said.

Robert Bosch and Continental, the world’s two largest automotive suppliers, declined to comment.

Volkswagen expects chip supplies will remain tight during the first quarter, but recover in April-June. It aims to make up for delayed production in the second half of the year.

“To defuse the problem, a transparent cooperation with semiconductor players is needed as well as clear commitments to secure production volumes vis-à-vis other client groups,” McKinsey partner Ondrej Burkacky said.

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