The AI Boom Is Creating A New Supply Chain Headache For Automakers

The AI boom is diverting resources away from basic automotive chips. Could it turn into semiconductor shortage 2.0?

By: Rob Stumpf

Nov 10, at 5:45pm ET

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Automakers could soon find themselves battling a new chip shortage.
You might not be surprised to learn that AI is to blame, but not in the way you might think.
Manufacturing capacity, engineering talent, and investments are flowing into building profitable AI-related projects instead of basic industrial components.

The auto industry may be headed for another chip crunch. Last time, it was the pandemic that snarled supply chains and threw the chip market out of whack. This time, the AI boom is squeezing the supply of the basic semiconductors that modern cars rely on.

The CEO of Dutch semiconductor manufacturer Nexperia, Stefan Tilger, told Reuters that competitors had shifted supply for commodity semiconductors toward chips used in AI data center. And since a great deal of that production was once dedicated to mature chips (like those used in cars and other industrial equipment), a bottleneck is quickly brewing in the automotive supply chain. The auto industry is "suffering quite heavily," he said.

Photo by: InsideEVs

STMicroelectronics, a Swiss semiconductor manufacturer, is seeing the same problem, according to comments reported by the outlet. CEO Jean-Marc Chery warns that chip foundries and assembly plants are increasingly "disengaging" from traditional mainstream automotive and industrial applications. Tilger says that another emerging area eating into the supply chain is the new breed of robotics beginning to hit the market.

Both company leaders are stressing that the upcoming shortage isn't because big GPU companies like Nvidia are eating up every last chip known to man. The squeeze is happening even further upstream in the supply chain.

And the auto industry is already feeling the impact. German automotive supplier Aumovio, which makes sensors, cameras, and other in-vehicle electronics for customers like BYD, BMW, and Ford, warned on a recent earnings call that its chip costs are rising and will "explode" next year.

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"What is the reason for that situation? The reason are the data centers for mainly artificial intelligence," said interim finance head Claus Bauer. "We can tell you that there's no price sensitivity whatsoever in that area. All of our suppliers in that regard could sell twice their capacity to this very lucrative, non-price-sensitive area."

Automakers are no strangers to semiconductor shortages. During the pandemic, chip shortages forced car companies to idle production lines and even ship cars without certain computer-reliant features, like automatic start/stop. It's not clear yet that things will get as bad as last time. But if they do, the AI-driven race to make everything smarter could lead to less-smart cars, if only temporarily.