Auto makers caught short by the semiconductor shortage are wondering how long it will last and how to respond. Here are some answers.

1. What’s Chipping
Away at Automotive
Production?
March 2021

2. Summary
Source: BCG analysis.
Today’s semiconductor shortages threaten to slow
down the growth and recovery the auto industry has
fought so hard to win.
On the supply side, non-memory capacity grew by 4%
in 2020 (compared to pre-COVID plans of 6%) but was
insufficient to absorb the demand surge.
We expect semiconductor demand (excluding memory)
to accelerate further in 2021 and semiconductor supply
conditions to remain tight, with a major impact on
OEMs in the first quarter of 2021.
Automotive companies have poor visibility into
demand-supply dynamics, but can gain transparency
into—and influence over—the semiconductor supply
chain by rethinking their semiconductor strategy and
position in the value chain.
Auto sales began to recover in mid-2020 just as
semiconductor sales (excluding memory products)
from other applications had climbed 5% to 10% above
pre-COVID levels.
A surge in sales of PCs, consumer electronics, and cloud
and networking infrastructure caught many by surprise.
Contrary to some comments and conjectures in the
media, geopolitical tension does not appear to be a
major factor, as the share of semiconductor
shipments to China has remained stable.

3. In January 2021, demand recovery in automotive appeared as
semiconductor sales (excluding memory products) from other
applications were already 5% to 10% above pre-COVID levels
Source: BCG analysis based on Semiconductor Industry Association data from the World Semiconductor Trade Statistics database.
50
60
70
80
90
100
110
120
Jul
2019
Jan
2019
Jul
2020
Jan
2020
Jan
2021
Monthly global sales of semiconductors ($)
Base 100 = 2018 month
FULL 2020
VERSUS 2018
Automotive-specific –11%
Total semiconductors –6%
Memory –24%
Non-memory semiconductors1
excluding auto-specific
+4%

4. A surge in sales for smartphones and automotive joined continued strong
demand for PCs and data center equipment in Q4 2020 to boost the
semiconductor market
Source: BCG analysis based on Semiconductor Industry Association data from the World Semiconductor Trade Statistics database.
Note: ICT = Information and communications technology.
Change in monthly global sales of application-specific
semiconductors versus 2018 ($ billion)
–1.0
–1.5
–2.0
–0.5
0.0
0.5
1.0
1.5
2.0
–10
–15
–20
–5
0
5
10
15
20
Data center demand was
already strong due to
cloud and AI investments
Strong demand surge across
all end markets—particularly
smartphones
Continued strength in
semiconductor demand from
PCs and ICT infrastructure
Jan
2019
Jan
2020
Apr
2020
Jul
2020
Oct
2020
Dec
2020
Apr
2019
Jul
2019
Oct
2019
$
billions
%
variation
Variation versus
2018 (%)
Other consumer
electronics
Smartphones
PCs and data
center equipment
Communications
networks
Automotive
Industrial and
multi-purpose

5. Three key factors drove the evolution of semiconductor demand in 2020;
two of them were known at the start of the year—then COVID-19 hit
Source: BCG analysis.
1Amazon, Microsoft, Google, Facebook, and Apple. 2
Battery electric vehicles.
FACTORS ALREADY KNOWN AT THE BEGINNING OF 2020 UNEXPECTED HIT IN Q1 2020
New devices with increased
semiconductor content from
legacy nodes
• Image signal processors: from two to
four or more cameras per phone
• 5G: 30% to 40% more semiconductor
content in smartphones; 2x to 16x more
antennas in base stations
• Display touch controllers and
connectivity (WiFi/Bluetooth): adoption
in wearables, IoT, and automotive
• Electric vehicles: penetration growing
rapidly, from 2.7% BEV2 in 2020 to 3.9%
in 2021 and 5.5% in 2022
Rollout/commercialization of
highly anticipated new technology
and devices
• Rollouts of 5G networks in major
markets, including China and the US
• Apple’s new 5G iPhone models
introduced in September-October,
expected to create the biggest upgrade
cycle in years (70 million units or more)
• New-generation gaming consoles by
Sony and Microsoft (250 million installed
base) introduced after seven years
Massive migration to
work-from-home due
to COVID-19
• PC sales up by 5% in 2020, reversing a
years-long decline
• Massive investments in cloud and
networking infrastructure driven
primarily by hyper-scalers: the capex of
US players1 alone reached $95 billion in
2020 (up 38% year-on-year, after 13%
growth in 2019)

6. The share of semiconductor shipments to China has remained stable;
geopolitical tension does not appear to be a major factor behind the
demand surge
Source: BCG analysis based on Semiconductor Industry Association data from the World Semiconductor Trade Statistics database.
Breakdown of global semiconductor sales (%) by shipment-destination region
0
10
20
30
Huawei typically accounted for 5% to 6% of global
semiconductor demand, so it's possible that lower Huawei
purchases in 2020 as a result of US export controls may have
been offset by higher purchases by other Chinese OEMs.
40
50
60
70
80
90
100
Europe
Americas
Asia Pacific/All other
China
Jan
2019
Jan
2020
Apr
2020
Jul
2020
Oct
2020
Apr
2019
Jul
2019
Oct
2019
Jan
2018
Apr
2018
Jul
2018
Oct
2018
Total share of China as
destination has remained
stable since 2018

7. On the supply side, non-memory capacity grew by 4% in 2020 (70% of
pre-COVID plans) but was insufficient to absorb the demand surge
Source: BCG analysis based on Semiconductor Industry Association data from the World Semiconductor Trade Statistics database and Gartner.
Note: Monthly capacity additions estimated based on Gartner's quarterly capacity evolution for foundries.
Memory Non-memory
50
60
70
80
90
100
110
120
Jul
2019
Jan
2019
Jul
2020
Jan
2020
Jan
2021
50
60
70
80
90
100
110
120
Jul
2019
Jan
2019
Jul
2020
Jan
2020
Jan
2021
Sales growth 10%
above capacity growth
Actual capacity increases in
2020 were ~70% of pre-COVID
plans (~4% versus ~6%)
Installed capacity (wafers): pre-COVID plans
Installed capacity (wafers): actuals
Sales ($) Base 100 = Q4 2018 (not adjusting for seasonality)

8. We expect semiconductor demand (excluding memory) to accelerate
further in 2021 due to major increases in smartphone and auto demand
Source: BCG analysis based on company earnings and financial analyst reports; Semiconductor Industry Association historical data from the World Semiconductor Trade Statistics database; Gartner.
Semiconductor revenues, excluding memory-product category, by end market ($ billions)
2018
Smartphones
PCs
ICT Infrastructure
Consumer electronics
Industrial goods
Automotive
2019 2020 2021
(preliminary)
40 38 35 41
46 44 43 45
35 33 36 39
73 71 77
83
58 57 64
63
63 +5%
+8% –1% +6% +8%
–1%
–2%
–5%
–4%
–3%
+9%
+11%
+8%
+10%
–1%
–9%
+16%
–1%
+7%
+9%
+4%
+18%
313 310
327
354
65
71
82 8%
growth for 2021 year-on-year,
excluding memory products
• Midpoint of current forecasts by
semiconductor market analysts
• Up from 7% growth expected in
May 2020
• In line with prior historical
growth rates

9. Source: BCG analysis based on company earnings and financial analyst reports; Semiconductor Industry Association data from the World Semiconductor Trade Statistics database, Gartner, SEMI.
1Based on data for over 30 companies across end markets representing 40% of total semiconductor demand. OEM quarterly revenue forecasts are applied to estimate semiconductor sales in the prior quarter.
2Based on fab construction projects with a production start date in 2021.
Semiconductor supply conditions are expected to remain tight over
the next four quarters as demand growth continues to accelerate
Indexed quarterly semiconductor sales versus capacity, excluding memory-related products (Q1-Q4 2008 = 100)
80
85
90
95
100
105
110
115
120
125
Q4
2018
Q1
2019
Q2
2019
Demand: 99
Supply: 101
Demand: 104
Supply: 104
Demand: 113
Supply: 109–111
Q3
2019
Q4
2019
Q1
2020
Q2
2020
Q3
2020
Q4
2020
Q1
2021
Q2
2021
Q3
2021
Q4
2021
2019 average 2020 average 2021F average
Semiconductor sales
forecasts based on device
OEM revenue forecasts
across applications:1
Demand
Actual
Forecast
Manufacturing capacity
forecast based on
bottom-up view of fab
projects planned as of
March 20202
Supply
Actual
Forecast
Meeting the
expected 8% growth
in semiconductor
demand in 2021
will require average
global manufacturing
utilization to reach at
least 90%, the
highest since 2010

10. Source: IHS Markit; New Street Research; BCG analysis.
Note: BoM = Bill of materials.
The shortage will have a major impact on volumes in the first
quarter of 2021
“Although semiconductor
manufacturers have already
responded to the
unexpected demand with
capacity expansions, the
required additional volumes
will only be available in six
to nine months.”
CONTINENTAL
DECEMBER 4, 2020
“Shortages are being felt in
the overall automotive supply
chain. It will take time to bring
more capacity on line.”
REINHARD PLOSS, CEO, INFINEON
FEBRUARY 4, 2021
Semiconductor supply issues
“will potentially have
substantial impact on light
vehicle production in the first
half of 2021.”
FREDRIK WESTIN, CEO, AUTOLIV
JANUARY 26, 2021
“Our current estimates from
suppliers support a scenario
where we could lose 10% to 20%
of our planned first quarter
production.”
JOHN LAWLER, CFO, FORD
FEBRUARY 4, 2021
“We are doing everything in our
power to minimize lost
production and to ensure that
normal deliveries to customers
can be resumed as rapidly as
possible.”
MURAT AKSEL, BOM PURCHASING,
VOLKSWAGON
DECEMBER 18, 2020
An approximately
1 million unit
downturn in light
vehicle production
volumes is expected
for Q1 2021

11. Source: IHS Markit; BCG Analysis.
Note: IC = Integrated circuit (semiconductor).
Automotive volumes will decline in 2021 despite expected
gains in Q2 and Q3, with potential shortages ahead
Global quarterly light vehicle production 2021 (million units)
0
21
22
23
24
Q3 Q4 Q1 Q2 Q3 Q4
2020 2021 F
Shortage caused by multiple factors
• Auto semiconductor demand in Q4 up
to 10%–15% above pre-COVID levels
• Demand crowded out by demand surge
of other sectors
• Supply up by 4%, but not enough to
absorb depleted inventories
Potential shortage
by the end of 2021
Lost volumes
partly recovered
Potential volumes
(w/o IC shortage)
Reduced volumes due
to IC shortage
Expected excess production
Expected volume reduction
due to IC shortage
Expected amount of
units lost
Expected amount of units
recovered
Automotive
units lost –0.1 to –0.2 –0.8 to –1.2 +0.6 to +1.0 –0.1 to –0.3

12. Sources: BCG analysis based on company earnings and financial analyst reports; Semiconductor Industry Association data from the World Semiconductor Trade Statistics database; Gartner.
Note: IC = Integrated circuit (semiconductor). SAT = Outsourced semiconductor assembly and test vendors. Tier-1 = Leading distributor. OEM = Original equipment manufacturer.
The semiconductor supply chain is complex, and automotive
companies have poor visibility into demand-supply dynamics
IC vendor Foundry OSAT Distributor Tier-1 OEM
LIMITED VISIBILITY INTO SUPPLY CHAIN
Structural challenges for supply-demand balance
Auto makes up just 10% of
semiconductor demand and less than
5% of the foundry business
There are over 30 product
types, with different design
and manufacturing chains
Six end markets, with semiconductor
companies far removed from end-user
demand
Complex, distributed global
supply chain; bottlenecks can
occur anywhere
10- to 20-week lead times
Fragmentation of manufacturing
capacity across integrated device
manufacturers and foundries

13. Source: BCG.
OEMs can gain transparency into—and influence over—the
semiconductor supply chain by rethinking their semiconductor
strategy and their position in the value chain
SHORT-TERM | Address now MID-TERM | Set up Q1–Q4 2021 LONG-TERM | Progress in 2021–2022
A. Build visibility into the semiconductor
demand-supply balance over the next
eight quarters across key components
B. Plan and execute rapid interventions
C. Build early warning indicators at the
semiconductor parts level to prevent
additional bottlenecks
Secure continuity of supply Get more control over the supply chain Achieve independence from IC vendors
D. Plan IC technologies, raw materials, and
manufacturing processes over a three- to
five-year horizon
E. Evaluate potential structural changes in
semiconductor supply terms, e.g., a
premium for security of supply, extension
of consignment
F. Move to sourcing approaches that provide
direct control and security over supply, e.g.,
direction relationships with semiconductor
vendors, capacity contracts
G. Identify specific semiconductors with a
high potential for differentiation, e.g., in
performance, integration, or supply security
H. Define new semiconductor roadmap,
including new in-house development
I. Build or acquire new competencies

14. Source: BCG analysis.
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