Now Is the Time for Automotive to Embrace Buffer Stock, Says TSMC Director

Buffer stock appears to be the way of the future for global supply chains.

Recently at the Global Smart Vehicle Executive Summit of Seicon Taiwan 2022, Director of Automotive and MCU Business Development at TSMC, Cheng-Ming Lin, made a comment that made the automotive industry take notice: as hard as the auto industry has had it the last few years, another chip shortage may be on the horizon.

The reason? The rapid electrification and automation of the auto industry that is expected to double or even triple their size as customers in the electronic component and semiconductor market. According to Lin, a vehicle with just Level 1 automous driving features require between 10 and 12 sensors, while moving to Level 4 can increase that number by four or five times. Today, gasoline cars account for 70% of all the electronic components and semiconductors on bills of material. By 2030, however, it is expected that electric vehicles will account for 70% — a near complete market reversal.

In direct competition with the consumer electronics market, should trajectories continue, there will simply not be enough critical components to go around until other markets outside of Taiwan (such as China and the U.S.) ramp up production — a development that will take several years even with recent attempts to provide incentives for domestic chip manufacturers.

However, despite these dour warnings, there is a silver lining. During the height of the COVID-19 pandemic, according to Lin, the automotive industry canceled many of their component orders, primarily because of the challenges of keeping production lines in operation through the stringent health and safety protocols of the time. Seeing an opening, the booming PC and smartphone markets snatched up nearly all of the surplus inventory. Now, as the pandemic has subsided and the PC and smartphone markets have cooled, the automotive industry finds itself in a rare position to grab the remaining inventory and keep it as buffer stock, hedging against the next great component market shortage.

“If you missed the opportunity again,” said Lin, referring to the auto industry, “if the (PC and smartphone) market heated up again, you’ll have chip shortage again.”

This is not the first time the auto industry has had the opportunity to secure their supply chains through buffer stock. Following the 2011 Tohoku earthquake in Japan which dealt a great blow to Japanese automotive production, Toyota Motor Company adopted a buffer stock approach that saw them acquire enough ICs to maintain production for several years. Fast forward to 2020, Toyota, while not immune from the supply chain disruptions of the pandemic, fared significantly better than Ford, Chevrolet, Chrysler, and virtually all of its peers.

Indeed, to survive the impending shortages, companies in virtually every industry, not just automotive, should consider accumulating buffer stock, as well as reliable solutions that allow companies to unlock the benefits of buffer stock without the drawbacks, such as steep upfront costs and the use of limited warehouse space for long-term storage. For more information on how we can make that possible, contact a Partstat representative today and ask how you can acquire buffer stock without any upfront costs.