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Volkswagen looks at direct buying from manufacturers to secure chips

Volkswagen is looking into purchasing chip supplies directly from manufacturers, according to a company executive, as automakers fight a global semiconductor shortage.

“We are thinking about entering direct contractual relationships,” said the executive, who declined to be named.

“The industry will have to react due to the significance of semiconductors with regard to vehicles today.”

Automakers across the world are adjusting assembly lines because of the shortages, caused by manufacturing delays that some semiconductor makers blame on a faster-than-expected recovery from the coronavirus crisis.

Volkswagen, which warned as early as December 4 about the problem, currently sources chips through significant suppliers such as Bosch and Continental and has no direct contractual or supply agreements with semiconductor makers.

Automakers also affected by the shortage include Ford, Toyota, Nissan, and Daimler, with the companies having to slash production or planning to decrease working hours because of the disruption.

Volkswagen is presently in multi-party talks with its main suppliers, chipmakers, and wafer makers to address the issue, the executive said. “We must ensure that wafer and semiconductor makers know our needs.”

In 2019, automotive groups accounted for approximately a tenth of the $429 billion semiconductor market, according to McKinsey, with NXP Semiconductor, Germany’s Infineon, and Japan’s Renesas among major suppliers to the sector.

The executive said that even though it was still not clear what exactly caused the bottleneck, it was important not to depend on just one supply path, potentially breaking with a tradition to source chips only through top automotive suppliers.

Solutions could include rising stocks, as chips don’t take up as much storage space as other automotive components, the executive said.

Robert Bosch and Continental, the world’s two largest automotive suppliers, refused to comment.

Volkswagen expects chip supplies will remain tight during the first quarter but make recovery in April-June. It intends to make up for delayed production in the second half of the year.

“To defuse the problem, a transparent cooperation with semiconductor players is needed as well as clear commitments to secure production volumes vis-à-vis other client groups,” McKinsey partner Ondrej Burkacky said.

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