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China Auto Chip Shortage Ground Zero

China Auto Chip Shortage: Kelvin Pang is willing to stake a $23 million paycheck from his tiny office in Singapore that the worst of the chip shortage for automakers is still ahead, at least in China.

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Pang purchased 62,000 microcontrollers, which originally cost the German buyer $23.80 each and are chips that help regulate a variety of processes, including the power systems and charging of electric vehicles as well as the engines and transmissions of automobiles.

Now he wants to sell them for $375 each to auto manufacturers in Shenzhen, a Chinese tech powerhouse. He claims to have rejected offers of $100 each, or $6.2 million for the entire package, which is currently packed in a Hong Kong warehouse and small enough to fit in the back seat of a car.

Pang told Reuters that “the automakers have to eat.” We have time to wait.

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The 58-year-old, who shied away from disclosing the price he purchased for the microcontrollers (MCUs), makes a business by linking Chinese buyers and sellers with surplus electronics inventory that would otherwise be scrapped.

He claims that the recent two-year global chip crisis, which was brought on by pandemic supply disarray and surging demand, has changed what was formerly a high-volume, low-margin trade into one with the possibility for lucrative agreements.

China Auto Chip Shortage

Worldwide automotive chip order delays are still lengthy, but brokers like Pang and thousands of others are concentrating on China because it has become the epicenter of a crisis that the rest of the industry is progressively getting over.

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A Reuters examination of 100 automotive chips made by the five major manufacturers found that new orders are typically backed up by nearly a year globally.

Global automakers like General Motors Co (GM.N), Ford Motor Co (F.N), and Nissan Motor Co (7201.T) have taken action to improve access in response to the supply crunch. Their approach has included direct negotiations with chipmakers, paying more per part, and taking additional inventory.

However, the picture for China is less optimistic, according to interviews with more than 20 industry participants, including brokers, automakers, suppliers, and CATARC specialists, a government-affiliated auto research agency in China.

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China depends nearly exclusively on chips supplied from Europe, the United States, and Taiwan despite being the world’s largest automaker and a pioneer in electric vehicles (EVs). The end of a zero-COVID shutdown in Shanghai’s auto industry last month has added to supply constraints.

According to CATARC, the China Automotive Technology and Research Center, the scarcity is more severe than elsewhere and poses a threat to slow the country’s EV progress. Within the next two to three years, a young domestic chipmaking industry is unlikely to be able to meet demand, the report claims.

Pang, for his part, predicts that China’s scarcity would persist through 2023 and believes that keeping supplies after that point would be risky. The one danger, in his opinion, is a more severe economic slump that may lower demand earlier. Source: Reuters.com

The Heartz Team.

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