Automakers face quake-related shortages of microchips, batteries, experts say

Automakers face quake-related shortages of microchips, batteries, experts say

Automotive News | March 15, 2011 – 1:31 pm EST

DETROIT (Bloomberg) — Ford Motor Co. and other global manufacturers are maintaining production while waiting for partners in quake-rattled Japan to increase one key export: information.
Ford is among the numerous manufacturers worldwide that depend on Japan for everything from memory chips to batteries for hybrid cars. The goal is to avoid parts shortages while Japanese suppliers such as Sanyo Electric Co. and Toshiba Corp. make sure they have access to power, water, transportation and materials.
Four days after the magnitude 9.0 earthquake, Germany’s BMW AG, truckmaker Volvo AB of Sweden and ON Semiconductor Corp. all say it’s too early to know how they’ll be affected by their Japanese vendors or customers.
One reason is the lack of information flowing from suppliers, and from the suppliers’ suppliers. Companies such as South Korea’s Samsung, taking no chances, are seeking other sources to avoid shortages that might shut production.
“The reality is the companies don’t know the full extent of what’s happened,” said economist Kim Hill at the Center for Automotive Research in Ann Arbor, Mich. “You can’t build a car with 97 percent of the parts — you pretty much need all of them.”
Missing suppliers
For example, Honda Motor Co. is struggling to make contact with some of its Japanese suppliers, IHS Automotive reported today, citing the automaker.
“Honda has disclosed that at least 113 of its suppliers are located in the affected areas and that it has yet to get in touch with more than 40 of them,” the IHS report notes.
Nissan Motor Co. also faces major hurdles. According to IHS, company CEO Carlos Ghosn told a TV interviewer, “Our best hope is that we start to produce again (in Japan) in two or three days, but not for very long as our supplier network has really been devastated.”
Electricity shortages caused by a shutdown of nuclear power plants in northern Japan is limiting the ability of suppliers to return to production.
“Sanyo supplies our hybrid batteries from Japan,” said Todd Nissen, a spokesman for Ford. “We have not had any supply disruptions at this point but, like the rest of the supply base, Sanyo is continuing to assess the situation.”
Sanyo, which is 80 percent owned by Panasonic Corp., supplies the nickel-metal battery packs for Ford’s Fusion hybrid sedan that’s assembled in Mexico.
Disruptions in chip supplies
Two U.S. chipmakers that supply the auto industry reported disrupted production at their plants in Japan. Texas Instruments Inc., the second-largest U.S. chipmaker, said its sales will be hurt in the first and second quarters. Freescale Semiconductor Inc. of Austin, Texas, said its plant in hard-hit Sendai has ceased operations.
Japanese companies including Shin-Etsu Chemical Co., silicon-wafer manufacturer Sumco Corp. and automotive supplier Denso Corp. — an affiliate of Toyota Motor Corp. — temporarily halted production.
Intel Corp., which makes microprocessors and integrated circuits for computer manufacturers, buys wafers from Japan but relies on flights to transport goods.
“Right now the main issue is trying to sort through the issues associated with moving materials within Japan,” Intel spokesman Chuck Mulloy told Reuters.
ON Semiconductor said unreliable power supplies kept one its six factories off line.
Even when suppliers are able to keep producing, concern about potential shortages is driving up costs. Prices of semiconductors used in personal computers and mobile phones jumped.
Research firm IHS iSuppli said the quake and its aftermath could result in significant shortages of some electronic parts and lead to big price hikes.
“While there are few reports of actual damage at electronic production facilities, impacts on the transportation and power infrastructure will result in disruptions of supply, resulting in the short supply and rising prices,” iSuppli said.
Japan accounts for one-fifth of the world’s semiconductor production, including about 40 percent of flash memory chips used in everything from smartphones, tablets to computers.
Even if shipments of semiconductor parts affected by the quake were disrupted for only two weeks, shortages and their price impact were likely to linger until the third quarter, iSuppli said.
Auto plant closures
Japan is a major source of electronic components for autos and is the primary supplier of batteries and parts for hybrid vehicles, said Hill, the automotive research group economist.
The U.S. relies on Japan for about 14 percent of parts for auto production, Hill said, predicting that Toyota, Nissan and Honda will see the biggest impact to their U.S. operations.
While Ford hasn’t experienced any parts disruptions so far, “We are still working with our Tier 1 suppliers, who are in turn assessing the Tier 2 supply base,” spokesman Nissen said.
Toyota, Honda and Nissan all suspended domestic auto production until at least March 16, and until March 20 in Honda’s case. Toyota may lose as much as $72 million for each day of lost production, according to a Goldman Sachs estimate.
Volvo Cars, the Swedish carmaker owned by China’s Zhejiang Geely Holding Group Co., buys about 10 percent of its components from Japan, spokesman Per-Ake Froberg said. “Our production won’t be affected this week, but then we’ll see,” he said.
Silicon wafers
Taiwanese and Korean chipmakers may also be forced to cut output if shutdowns in Japan persist because the country supplies more than 80 percent of the world’s silicon wafer supply, said Joyce Yang, an analyst at DRAMeXchange in Taipei.
Wafers are thin round slices of silicon that are the key material used in the production of chips. Samsung and Powerchip Technology Corp., the largest Korean and Taiwanese memory-chip makers, both stopped offering DRAM chips in the spot market after concern their own production may be affected by a shortage in supply of wafers.
Samsung, which makes phones and televisions as well as components, is preparing for possible shortages of materials, spokesman James Chung said.
David Sedgwick and Reuters contributed to this report.

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