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18 October 2022

Hyundai develops 5G module as auto industry reshapes supply chain

Fallout from the pandemic and subsequent geopolitical events continues to afflict semiconductor supply chains and their ultimate industry end points, with the automotive sector especially still enduring chip shortages.

This has been compounded by a rapid increase in chips numbers required by electric vehicles (EVs) as well as structural problems in auto supply chains. This has, in turn, impinged on the wireless industry as vehicles increasingly require high end communication chips, with the likes of Qualcomm and MediaTek competing on their ability to ensure future stability of supply as much as on cost and performance.

The auto industry was hit in 2020 at the time demand for vehicles started to pick up after the initial slump early in global lockdowns, with semiconductor makers unable to respond fast enough. This led auto makers to appreciate a major flaw in their supply chains, which was the indirect nature of their relationship with semiconductor makers leading to a bottleneck there and a lack of transparency over the dynamics of supply and demand.

They tended to purchase parts and subsystems from just a few very large specialist suppliers such as Germany’s Bosch and Continental, or the USA’s Visteon, which in turn obtained fundamental components from companies at the bottom of the chain, including semiconductor makers. One impact of this was that although there appeared to be adequate diversity of supply for parts, in fact the chips inside ended up coming from the same foundry, or just a couple.

One of the first responses to the supply crunch therefore was for the automakers to bypass the parts makers and establish direct supply chain links with as many chip suppliers as possible, as well as wafer fabricators such as Taiwan’s TSMC.

Another response has been to reshape the dynamics of the supply chains, especially in inventory levels. One irony of the crunch was that Toyota, the world’s second biggest automaker by most counts, was initially the most immune because in response to the temporary cessation of supply in the aftermath of the Japanese Fukushima nuclear disaster in 2011, for semiconductors it had abandoned its strict just-in-time (JIT) delivery model designed to reduce stocking costs. So at first it had a large enough buffer of semiconductors to meet rising demand for vehicles. However, this may have led to a false sense of security and now Toyota has had been forced to slash production as its reserves have been depleted, while some of its rivals had taken steps to revise supply chains earlier.

Indeed, all responses so far only partially address the supply chain crunch, because they still leave automakers ultimately competing among themselves and with other sectors for chips from the same ultimate pot. For this reason, most are now embarking on more radical surgery to their semiconductor supply lines, in some cases entering the field themselves. Volkswagen, the world number one, in July 2022 announced that it was co-developing chips to secure a direct supply, working for the first time with second and third tier semiconductor suppliers such as STMicroelectronics.

“We are actively shaping our entire semiconductor supply chain. We are ensuring the production of the exact chips we need for our cars and securing the supply of critical microchips for years to come,” said Murat Aksel, VW Group’s board member of purchasing at the time. “In this way, we are setting new standards in strategic supply chain management.”

Yet its rivals were embarking on equally drastic measures, even if not necessarily involving direct manufacturing. General Motors announced, also in July 2022, that it was consolidating supply of semiconductors around three families it would buy and control itself. This entailed integrating more functions into single dedicated system-on-chip products in order to constrain the proliferation in chip numbers and establish independent supply lines, as well as hopefully reducing power consumption. This also involved bypassing traditional component suppliers and centralizing supply, aiming to exploit the company’s purchasing muscle to buy in bulk as a buffer against temporary shortages within this dedicated chain.

Some auto makers are already manufacturing their own communication modules through their own parts subsidiaries, such as South Korea’s Hyundai Mobis, part of the Hyundai Group. The company has developed a 5G communication module for high-speed connections and ultra-low latency, combining a communication chip, memory, RF circuit and GPS, intended for telematics services in 5G-connected vehicles.

The company said the module was not just for internal consumption but also to address the global market for integrated 5G based V2X (Vehicle to Everything) communications developed 5G tech, to enable a “broad range of transport applications” for enhanced safety and convenience, including sensor-data sharing between vehicles, automatic deceleration in school zones and vehicle control in emergencies.

“We will strive to develop differentiated mobility technology that merges the integrated 5G V2X technology with the existing autonomous vehicle sensors and our IVI technology, which gives us a competitive advantage over rivals,” said Joon-bae Choi, head of the connectivity and sound sector at Hyundai Mobis.

The implications of all this have not been lost on those big specialist parts suppliers, with Bosch announcing in June 2022 that it would invest €3bn in its own semiconductor business by 2026 as part of the EU IPCEI (Important Projects of Common European Interest) on Microelectronics and Communications Technology. The stated objective was to ensure an independent line of semiconductor supply for Europe’s automakers.

This has all played into the strategies of the major mobile chip makers as they jostle for position in a fast-expanding market for them. Wireless Watch discussed two weeks ago how Qualcomm’s automotive pipeline for contracts had mushroomed from $19bn to $30bn in just two months and that the company had gained pole position among China’s major car makers for top end wireless communication chips. This success has led to some push back from automakers concerned that Qualcomm might become too dominant a supplier for 5G chips at the highest process designs.

This is seen as an opportunity by MediaTek, for which automotive chips now account for approaching 5% of revenue, which indicated recently some potential customers wanted to avoid Qualcomm becoming too dominant in their supply chains in the way it had become in smartphones.

Qualcomm can point out that it in turn is diversifying its foundry base, after doubling its investment this year in USA based GlobalFoundries. Its objective is to increase chip manufacturing in the USA by 50% over the next five years, making chips there for automotive as well as 5G RF transceivers, WiFi and IoT devices. This long-term deal embraces chips based on GlobalFoundries’ FinFET platforms.

Supply chains are therefore being reshaped right across the automotive supply chain hierarchy, although this applies almost as much to other vertical sectors.