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In the latest response to a worldwide shortfall in auto-chip supply leading the auto industry to drop orders, TSMC is said to increase 20% of production by May according to a Japanese media source, Nikkan Kogyo Shimbun.

While this is good news and may stop the domino effect for global automakers in reducing production, the pricing power is also shifting to upstream OEMs.

TSMC is planning to increase the price by 15% targeting auto-chips according to Nikkei.

The auto industry is dropping orders

Affected by the pandemic, demands surged for electronic gadgets while auto orders slowed down leading to a shortage in auto-chip supply when the demands rebounded.

The shortage of SoC used for automotive microcontrollers and navigation systems began to surface at the end of 2020.

Global automakers such as Honda, Toyota, Volkswagen have subsequently dropped orders, Honda, in particular, will reduce production by 15% in the first quarter. Now the carmakers and governments are lobbying for TSMC to step in.

The coupling effect leads to price rise demand by TSMC

Shortly following a price rise last autumn coupled with Taiwan’s currency appreciation of almost 6% versus the U.S. dollar over the past year, TSMC is negotiating another 15% price rise to the downstream parties, including NXP Semiconductors and Japanese Renesas Electronics who commission semiconductor production to TSMC.

This will likely take effect from late February to March.

Normally, the carmakers and car component suppliers including the semiconductor providers meet once a year for price negotiation.

The carmakers increase profit gain by 2~3% cost reduction on the upstream suppliers, but as chips are in high demand, the chip manufacturers become the bottleneck and reversely raise the price to automotive-chip designers which then, turn to automakers for profitable gain. This is a rare case.

Other OEMs joining the rally include United Microelectronics Corporation (UMC).

However, it is not yet clear whether Taiwanese raw material suppliers can keep up with the production increase realization for TSMC by May.