Nexperia Chip Crisis Exposes Automotive Supply Chain Vulnerability to Chinese Semiconductor Dominance

Auto manufacturers promised to reinforce their supply networks following the COVID-19 pandemic's disruption of semiconductor production in 2020 and a fire at a Japanese manufacturing site that worsened the scarcity twelve months later. However, the crisis surrounding Dutch chipmaker Nexperia's Chinese operations has revealed a critical oversight: the sector never anticipated that basic technology semiconductors could serve as leverage for Beijing against Western nations, reports news agency Reuters.

"No one prepared for geopolitical disruption, and they're still not prepared," Ambrose Conroy, CEO of US firm Seraph Consulting, which advises automakers, was quoted as saying by Reuters.

Also read: Nissan and Mercedes-Benz Sound Alarm Over Deepening Chip Supply Crisis

The Dutch authorities assumed control of Netherlands-headquartered Nexperia in late September, expressing apprehension that its technology might be transferred to Chinese owner Wingtech. In response, Beijing suspended exports of completed Nexperia semiconductors assembled at the Pearl River Delta facility. Last week, the Netherlands backtracked on its decision to seize control of Nexperia, indicating a possible resolution.

Through its Dongguan manufacturing facility, Nexperia distributes semiconductors employed in apps ranging from automotive braking systems to electric window mechanisms. Despite selling for mere fractions of a penny per unit, the scarcity compelled Nissan and Honda to reduce production while prompting German supplier Bosch to decrease factory operating hours.

This examination of how the sector rushed to address the unexpected emergency draws from conversations with approximately twelve individuals, including automotive executives, suppliers and chip distributors, who explained how just-in-time stock management and insufficient supply-chain diversification rendered motor manufacturers susceptible to geopolitical turbulence.

China's Control Exceeds Beyond High-Tech Components

The investigation demonstrates how Chinese dominance extends past advanced technology and rare earth elements to ordinary yet essential components, and how Beijing exercises that influence to immobilise worldwide production. Certain particulars, including Bosch's exposure magnitude and firms' difficulties with yuan trading requirements, have not been previously disclosed.

While Dutch authorities seized control of the Nijmegen headquarters, Chinese operations remained under Nexperia's Chinese parent company's management.

"The Dutch thought they had seized Nexperia, but they only took over an office building," Li Xing, a professor of international relations at the Guangdong Institute for International Strategies, a think tank, was quoted as saying by Reuters.

"What this shows is that, even in mid- and low-end segments, they depend on China. If China wants to get a grip on you, it still can. You have no way out."

A Wingtech spokesperson stated that Nexperia has achieved industry leadership since acquisition. "The current crisis shows that breaking up international companies harms supply chains and puts key industries at risk," the spokesperson said.

A Nexperia spokesperson indicated that the semiconductor sector's global complexity made anticipating geopolitical consequences challenging.

Low-Cost Components Overlooked

Nexperia's semiconductors were perceived as sufficiently inexpensive and accessible that one European motor manufacturer typically avoided preparing backup supplies, according to an individual at the carmaker. 

The Nexperia situation demonstrates that manufacturers' strategic susceptibility extends past sophisticated components, according to Alfredo Montufar-Helu, managing director at Ankura Consulting in Beijing.

Bosch lacked adequate alternatives initially, notwithstanding annual Nexperia product orders worth 200 million euros (£231 million), according to a knowledgeable source.

Currency Requirements Create More Complications

Nexperia recommenced sales to certain domestic distributors during late October but mandated yuan payment, replacing previously used foreign currencies. The currency modification appeared to be an attempt by the Chinese operation to function more autonomously from Dutch headquarters, Reuters has reported. Prepared-for-shipment chips accumulated at the Dongguan plant due to difficulties processing all yuan transactions, according to two briefed sources quoted in the report.

The circumstances have subsequently improved, they stated.

A Wingtech spokesperson denied any chip accumulation or yuan payment system difficulties, but offered no elaboration.

Beijing permitted some Nexperia exports to restart this month following U.S. President Donald Trump's meeting with China's Xi Jinping in Busan. This occurred just in time for Bosch and suppliers Aumovio, ZF Group and Hella, which were days away from halting some production, according to a person briefed on the matter.

Bosch, Aumovio and ZF refused to comment. A Hella spokesperson confirmed maintaining supply-chain stability.

What to Learn from Previous Crises

The chip scarcity revealed motor manufacturers hadn't absorbed lessons from the earlier disruption, according to Julie Boote, autos analyst at Pelham Smithers Associates in London.

"You would expect them to have several months' worth of supply inventory for chips," she was quoted as saying. "That's what they said after the last crisis."

Nissan Chief Performance Officer Guillaume Cartier acknowledged that replacing vulnerable supply chains requires time.

The Nexperia scarcity compelled Nissan to reduce production of its best-selling Rogue SUV, Reuters has reported, and presents an ongoing risk this year.

Conroy, the consultant, recommends clients maintain additional stock of critical components where they're required. That represents a costly adjustment for an industry dependent on "just-in-time" stock management to minimise expenses.

Toyota's Preparedness Stands Out

Not all motor manufacturers experienced disruption. Toyota mandates stockpiling several months' semiconductor supply as part of the business continuity strategy developed following the catastrophic 2011 Japan earthquake.

A Toyota spokesperson acknowledged risks that could affect vehicle production and confirmed continued close monitoring of developments.