Hello from the rainy and darker Frankfurt, we are reporting the latest round of results of large German industrial companies.

In a series of optimistic data from high-end automakers, BMW stands out. Due to the supply chain crisis, rival Daimler’s quarterly sales fell by 32%, while the Munich-based brand fell by only 12% over the same period, and its net profit increased by 42%.

Owner Oliver Zipse told everyone who is willing to listen that this is due to BMW’s excellent supply chain management-analysts also agree with this view. It proves to some extent that the idea-popular in Brussels and praised by the car lobby of the European Automobile Manufacturers Association (ACEA) hosted by Zipse-is close to semiconductor foundries related to ensuring the supply of scarce chips.

This troublesome topic is the main content of today. We have been meeting with chip manufacturers that have existing bases in Europe-such as Infineon, GlobalFoundries and Bosch-but found that few believe that the EU’s production plan will achieve the goals of its strongest supporters. Given the subsidies provided, they are unlikely to express their suspicions loudly, at least not before it is too late.

Brussels’ chip plan cannot solve the dilemma of automakers

Earlier this year, around the time the CEO of a high-end German manufacturer assured the Financial Times that his company was “fully visible” to its supply chain, a sales executive at Europe’s largest semiconductor website received a call.

The person who contacted the Dresden branch of GlobalFoundries was a purchasing manager of a large automobile manufacturer-this is rare, because automobile groups usually leave their Tier 1 suppliers to handle the mundane business of semiconductor procurement.

The question of auto executives, with a tense tone, heralds a crisis that will sweep the entire industry. “Will you consider running your fab at night and on weekends?”

Anyone familiar with the semiconductor industry knows that its profitability depends on “utilization,” or how often a company can run its factories around the clock. In Europe, personnel and energy costs are high (GlobalFoundries’ Dresden plant uses electricity equivalent to approximately 200,000 households), especially.

No manufacturing plant can survive a long time with idle capacity. In fact, a large amount of research and development expenditure is aimed at reducing the downtime required for equipment maintenance. After the brief calm caused by the pandemic, GlobalFoundries began operating its fab at full speed from August 2020. Its boss recently told CNBC.

Insiders say the ignorance of the auto executive is a major feature of European industry and political circles’ ineffective response to the chip crisis.

The semiconductor shortage has severely hit European manufacturers. The most important is Germany, the economic engine of the region. In Germany, automakers have contributed a considerable part of the GDP growth.Latest official data exhibit Compared with July, German manufacturing output in August fell by 4%. Due to supply chain problems, the output of cars and trailers fell by nearly one-fifth.

The shortage also highlights the dependence of other parts of the world on key chips from Taiwan’s foundries. It is hardly necessary to be a geopolitical expert to realize that this territory is not the most stable place on earth.

In September, the European Commission took action. President Ursula von der Leyen proposed a “European Chip Act”, which considers the return of most of the semiconductor production made in Asia to be a “technical sovereignty” issue.

And the European Union Internal Market Commissioner Thierry Breton (Thierry Breton) Helpful clarification “Our idea is not to produce everything ourselves in Europe.” (I wish the economics of substrate manufacturing in the developed world). The European Union is still ambitious, by supporting the construction and expansion of cutting-edge fabs on the African continent.

Trade secrets Has long had doubts about strategy.

The problem with this plan, as we have seen, as a A compelling article by Niclas Poitiers from Bruegel states, Is triple.

The first one, as The boss of Europe’s largest semiconductor company emphasizes, Infineon, is the biggest buyer of chips elsewhere. The automotive industry accounts for approximately 8% of the entire semiconductor market. For example, no amount of distance from the automotive industry can make up for the fact that companies such as Apple and Samsung lead at least eight places in the rankings (as a purchasing executive at Volkswagen told us).

Second, the amount of investment required is jaw-dropping. Taiwanese chip giant TSMC will spend US$100 billion to expand its footprint in the next three years. The EU expects to invest up to 30 billion euros by 2030.As the American founder of TSMC Give it to our colleagues at Nikkei“Even if you spend hundreds of billions of dollars, you will still find that the supply chain is incomplete, and you will find that its cost will be very high, much higher than the cost of ownership you currently own.” If a big difference is to be made, the EU’s pool of funds must become larger.

Third, and most importantly, there is a mismatch between the type of investment that the EU is interested in—the most advanced chip production facilities—and the semiconductors that European carmakers desperately need.

As part of its “Digital Compass in 2030” plan, the European Union expressed its desire to build “manufacturing capabilities for nodes below 5 nanometers, with the goal of 2 nanometers and 10 times higher energy efficiency than the current one.”

But automakers hardly use two-nanometer chips. Modern cars are filled with hundreds of larger chips, mainly low-margin power, radar, and memory semiconductors that raise and lower windows and help GPS work. In a 2-ton, 4.5-meter-long SUV, chip size and weight are hardly a factor. The cost is.

“None of us makes mobile phones, and no one makes personal computers,” Dialog Semiconductor CEO Jalal Bagherli told the Financial Times when talking about Europe. He added that investing in cutting-edge processing chips “does not make much economic sense to me.”

This has not stopped those who see subsidies coming to set up their booths. In September, car registrations in Europe fell by nearly a quarter, to the lowest level in more than 25 years. “In order to avoid this situation from happening again in the future, Europe also needs to develop a strategic plan to increase EU semiconductor production,” the industry’s Brussels lobby group ACEA said last month.

However, as we mentioned earlier, despite relying on Asian suppliers, their current presidents seem to have dealt with the crisis well—which shows that a better understanding of the semiconductor market and its place in it is more than squandering cash. Effective solutions Brussels.

“We know exactly who our suppliers are, not only at the first level, but all the way to the raw materials,” Zipse told reporters on Wednesday. Although he declined to comment on whether BMW is paying more for its chips than other companies, he did say that the company “has always reached a fair agreement on how we deal with suppliers… This is now paying off”.

In addition to being somewhat misleading, the ambitions of Brittany and the EU are likely to be counterproductive.

Car companies are already ordering chips in large quantities.Infineon’s CEO told the Financial Times last month, “The current order looks more like 110 million to 120 million cars. [per year]According to data company IHS Markit, 80 million units are expected to be sold by 2022.

Stacy Rasgon, a stock analyst at Bernstein in the United States, said that last quarter’s chip orders from automotive customers were “above the trend” by 42%, which means higher than the number of cars actually produced.

It is risky enough to invest in semiconductor production capacity for political “bragging” (as a semiconductor executive put it). Investing in it based on current demand may be detrimental to existing European fabs, giving them the excess capacity they desperately want to avoid.

In the prospectus before listing on NASDAQ in New York this week, GlobalFoundries issued a warning to investors about its business model. “If we overestimate the needs of our customers… we may experience insufficient capacity utilization of these facilities, and fixed costs will not be reduced accordingly.”

We doubt whether customers in the automotive industry or legislators in Brussels can understand this message well.

Trade ties

NPR say Ryan Peterson related Flexible port The chief’s Twitter storm. Two stars in the U.S. economic press, Nathan Tankus with Joe Weisenthal Join hands Speak supply chain.

On the other side of the Atlantic, New car sales In the UK, due to shortages related to related shortages, Bargaining Chip CrisisAccording to the trade agency Motor Manufacturers and Traders Association, the registration Come down Compared with the level in October 2020, it has dropped by almost a quarter last month.

As Apple pushes suppliers to achieve carbon neutrality, chip makers Tokyo Electronics Aim to Reduce emissions per wafer (Nikkei, USD, subscription required) By 2030, it will be 30% higher than 2018 levels. Francesca Regalado and Claire Jones