Amid reports of increased semiconductor inventories in the supply chain, the automotive industry continues to be hampered by chip shortages. According to McKinsey & Company, automakers' demand for electronics continues to soar, but the automotive industry's reliance on 90-nanometer chips will keep supply and demand out of balance for some time.

McKinsey reports that most future automotive wafer demand will involve nodes at 90 nanometers and beyond, as many automotive controllers and electric powertrains, including electric drive inverters and actuators, rely on these mature chips. By 2030, such nodes will account for about 67 percent of automotive demand.

Semiconductor companies are increasing production of 90-nanometer chips, "but our analysis suggests that the compound annual growth rate will remain at only about 5 percent from 2021 to 2026 - not enough to eliminate the mismatch between supply and demand," the firm added.

Here's McKinsey's analysis of the numbers.

Total revenue for automotive chips could increase to $147 billion by 2030, up from $41 billion in 2019. Three segments - autonomous driving, connectivity and electrification - will drive most of the demand, accounting for $129 billion in revenue, or about 88 percent of total revenue .

Annual demand for 12-inch equivalent automotive wafers is likely to increase from about 11 million in 2019 to 33 million by 2030, a compound annual growth rate of 11 percent.

McKinsey explains that OEMs that rely on 90 nm chips in many applications have little incentive to migrate to smaller nodes because redesign incurs development and certification costs and more R&D staff.

Reluctance to redesign

The lifespan of automobiles greatly exceeds that of consumer products, so the electronic specifications of automobiles are not easily upgraded as technology advances. In addition, consumer companies use the same chips that many automakers are competing for and order in much larger quantities. One analyst said that because automakers are no longer the most influential customers of chipmakers, they have lost influence in negotiating preferential treatment. Automakers also have a reputation for ordering parts in advance and canceling orders at the last minute. This has exacerbated the impact of the global chip shortage on the automotive industry.

McKinsey explained that the disadvantages of using more advanced chips in vehicles often outweigh the technological advantages. Because of the high voltages and currents required to drive inverters and actuators, the chips used in these applications cannot benefit from the high transistor density characteristics of smaller node sizes.

"Of course, OEMs do sometimes need leading-edge chips - for example, to significantly enhance autonomous driving systems," the company added. "The compound annual growth rate for these chips (about 9 percent from 2021 to 2026) is higher than for mature nodes. However, OEMs may still struggle to obtain sufficient volumes due to intense cross-industry competition. As a result, the mismatch between supply and demand will persist in all node sizes."

Signs of Progress

Over the past two years, McKinsey and other consultants have been advising automotive OEMs to develop better technology roadmaps and improve short- and long-term demand planning to avoid another industry-specific chip shortage. The automotive supply chain also needs better cross-industry collaboration. McKinsey recommends that

• Tier 1 suppliers engage in discussions with automotive OEMs when creating technology roadmaps to identify opportunities for embedded components that can be used in multiple vehicles.

• Tier 1 suppliers can also co-invest in projects with OEMs to share the financial burden of creating mature or leading-edge node design and manufacturing capabilities-a strategy that can both reduce costs and increase supply.

• OEMs and Tier 1 suppliers may be able to ensure a more reliable supply of automotive chips by working more closely with semiconductor companies on demand forecasting and other activities.

There are signs that automakers are taking this advice to heart.

• Ford signed a non-binding agreement with U.S. semiconductor supplier GlobalFoundries to collaborate on chip development for Ford vehicles, and the two companies will explore expanding domestic chip production.

• GM said it is building ties with some of the biggest names in semiconductors - including Qualcomm Inc. and NXP Semiconductors NV - and has reached agreements to co-develop and manufacture computer chips.

• Mercedes-Benz Cars has established direct contacts with all chip suppliers, including Taiwanese wafer producers.

• SEMI and the Center for Automotive Research signed a joint exploration MOU to facilitate supply chain collaboration between the semiconductor and automotive industries.

• Volkswagen is in direct talks with chipmakers.

• Nissan Motor Co. and others are accepting longer order commitments and higher inventories.

• Tier 1 suppliers, including Robert Bosch and Denso, are investing in chip production.

While supply chain collaboration is significant, co-development agreements tend to look forward rather than backward. Automakers may be eyeing a transition to more advanced semiconductor technologies.