SHOPSMART AUTOS – CUSTOMER INFORMATION – OCTOBER 21, 2021 -3
Semiconductor shortage and the U.S. auto industry Other traditional regulatory tools normally available to industry and the U.S. government are aimed at addressing import competition and do not offer a ready solution for this shortage scenario (e.g., Section 201 global safeguards; Section 301 unfair trade practices; Section 232 national security investigations; antidumping or countervailing petitions). Pressuring foreign suppliers or sovereigns to place certain U.S. industries in front of their production queue is not part of this regulatory arsenal. Nor is it consistent with pure free market principles. There is also the sensitivity of government intervention on behalf of the auto industry ahead of other industry sectors. Another option is for an existing supplier to add foundry capacity. According to the Congressional Research Service, North America ranked fifth in fabrication capacity at 11 percent, behind South Korea, Taiwan, Japan and China. Global Foundries, a U.S.-headquartered pure-play foundry, estimates adding capacity would take up to one year and cost hundreds of millions of dollars for what some consider the automotive sector’s mature technology. The slowest and most expensive solution is for a contract foundry to build a new facility. The SIA estimates that a foundry costs from $10 billion to $20 billion, depending on the type of chip to be produced. Over a decade, including initial costs and retooling, such a facility could cost up to $40 billion. A new facility for mature technology semiconductors, such as those for the auto industry, would not likely cost the same as a facility for emerging technology semiconductors. Nonetheless, the cost would still be billions of dollars. Moreover, a foundry for auto semiconductors would take at least five years to earn even a low profit margin. Given the high capital expense barrier to entry, it is doubtful that a foundry could be built without some type of government support. An Organization for Economic Development and Cooperation report found that Intel, Micron, Samsung and TSMC, were among the semiconductor companies receiving over $50 billion in government support between 2014 and 2018. Not only does TSMC, the largest contract foundry in the world, receive subsidies from its own government, but it is also in line to receive subsidies from the U.S. Government. TSMC’s Chairman said that “[s]ubsidies will be a key factor in TSMC’s decision to set up a fab in the U.S.” As stated above, TSMC’s receipt of government support is not an isolated event for the semiconductor industry. In December 2020, Congress passed the Creating Helpful Incentives for Producing Semiconductors in America Act (the CHIPS Act) as part of the National Defense Authorization Act (NDAA). Section 9902 of the NDAA calls for U.S. Government support for both research and development, as well as facilities and equipment for semiconductor fabrication, assembly, testing, and advanced packaging. Although the CHIPS Act is currently unfunded, estimates are that it could cost as much as $50 billion. Whether the CHIPS Act is funded or not, it will not resolve the auto industry supply chain concerns, nor will building a new foundry or adding capacity to an existing one. The most realistic short-term solution to address the auto industry’s semiconductor shortage is likely to come through diplomacy. The long-term solution depends on whether auto semiconductor technology advances to the point of being considered emerging or whether a company and/ or a government would be willing to invest billions of dollars for a mature industry. DISCLAIMER: The views and opinions expressed in this article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be as substitute for professional legal advice.Tags: 2019 Subaru Forester Touring, 2020 BMW iX3, 2020 Chevrolet Suburban, 2020 dodge charger, 2020 EQC, 2020 Ford Super Duty, 2020 Honda Pilot, 2020 Kia Optima, 2020 Mercedes Benz, 2020 Nissan Versa, 2020 Subaru WRX STI, Audi SUV, BMW, Brandon K. Hardison, Chevrolet Car, Chevrolet Sonic, Dodge charger, electric vehicles, honda, Honda Pilot, Hyundai SUV, Mercedes Benz, Nissan Rogue, SUV, upcoming car, Volkswagen, Volkswagen Tiguan SEL Premium R-Line, Volvo Car
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