Biden team sees more chips, lighting soon for automakers

(Bloomberg) — Biden administration officials say they are beginning to see signs of alleviation for the global semiconductor shortage, including commitments by manufacturers to make more car-grade chips for auto companies that have had to shut down production.

US Secretary of Commerce Gina Raimondo, who has led President Joe Biden’s chip delivery efforts, has brokered a series of meetings between semiconductor manufacturers, their suppliers and their customers, including automakers. Senior government officials said the meetings helped allay mistrust between the parties regarding the chip makers’ production and allocation and car makers’ orders.

The result is greater transparency over manufacturers’ production and shipments and a gradual increase in supply for automakers, Raimondo said in an interview. The government has also recently put pressure on governments in Malaysia and Vietnam to ensure that semiconductor factories are considered “critical” businesses and would maintain some production after Covid-19 outbreaks, officials said.

“You’re starting to see some improvements,” Raimondo said, adding that the CEO of Ford Motor Co. Jim Farley and General Motors Co. chief executive Mary Barra in recent weeks have told her that “they have a little bit more of what they need” and the situation is “a little bit better”.

Shares of Ford, GM and Chrysler parent company Stellantis NV extended earnings on the news and all hit intraday highs in US trading. Ford and GM both outperformed the broader US market indices this year through Monday, while Stellantis lagged.

A Goldman Sachs analysis published last month said the peak impact of the chip shortage was in the second quarter and auto production “should rise in July.” But US automakers continue to struggle with the deficit, which is estimated to take a $110 billion toll on the industry.

Ford is closing or limiting production at eight plants this month, including the plant that produces the new version of the iconic Bronco sports car. According to GM spokesman David Barnas, five of GM’s North American plants will experience “downtime” this month and in August due to “semiconductor manufacturing adjustments.”

And tens of thousands of new cars are still standing in many places outside U.S. factories, waiting for the chips to power their on-board computers.

A Ford spokeswoman declined to comment. Barnas confirmed Barra’s conversation with Raimondo and issued a statement the company issued on July 15.

GM’s “global procurement and supply chain, engineering and manufacturing teams continue to find creative solutions and make progress by partnering with the supply base to maximize production of our most in-demand and capacity-constrained vehicles, including large trucks and SUVs for our customers,” the statement said.

The semiconductor shortage predates the Biden administration but emerged as a crisis for the new president earlier this year, when US automakers were forced to curtail production due to lack of chips. Semiconductor manufacturing is concentrated at a few Asian companies, Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Ltd.

TSMC, a major partner of many of the world’s largest automakers, said last week that the company will ramp up microcontroller production by nearly 60% this year, a move expected to significantly boost deliveries for its automotive customers from this quarter.

Semiconductor manufacturers and auto companies are generally not face to face with the causes of the shortage and the solutions. Car companies have complained about a lack of transparency in how many chips are produced and where they are sold, while the chips industry says the problem started when, due to the pandemic, the car industry withdrew orders before then demanding that chips fulfill suppliers this one.

In addition to Biden’s urgency to ease the pressure, economists point to the chip shortage as a source of inflation, which hit a 12-year high in the US last month, fueling Republican attacks on the president’s spending plans. A lack of new cars relying on the chips pushed many Americans into the used car market, where rising prices accounted for more than a third of the cost of living rise last month.

Legislative Push

Raimondo is now trying to persuade Congress to pass $52 billion in funding to boost chip manufacturing and bolster semiconductor research and development on U.S. soil — a long-term strategy to reduce U.S. reliance on other countries in the global supply chain. Reduce. The Senate passed its version of the bill in June, but the House is still debating the measure’s scope and the details remain unclear.

Biden and Raimondo’s team are in daily talks with members of Congress about the bill, according to people familiar with the matter.

Biden has brought up the bill directly in talks with House Speaker Nancy Pelosi and has made it clear that he wants to sign it as soon as possible, one of the people said. The White House is proposing to Pelosi the exact mechanism and timing to get the legislation passed, the people said, noting that she is aware of the stakes.

“I have a longstanding, very productive relationship with Speaker Pelosi and I would be confident that she would like to put her chamber stamp on the bill and that adjustments could be made,” Raimondo said.

However, the government is urgently addressing the issue. Even if the funding is approved, industry representatives expect implementation — including hiring more staff from Commerce — to take up to six months.

“What I’m saying is we need to get this done this summer,” Raimondo said of the timeline for passing the bill. “They can’t go into recess in August without getting this done.”

The US isn’t alone in trying to increase domestic production: the European Union plans to double its chip production to at least 20% of world supply by 2030, and Chinese President Xi Jinping has appointed economic tsar Liu He to oversee to hold on to the country’s efforts. to reduce dependence on foreign chip companies.

The Biden administration is also working with other governments producing the chips — including Vietnam and Malaysia — mainly to ensure factories can continue to operate safely during the pandemic.

In early July, the White House became aware of closures at semiconductor factories in Malaysia due to Covid outbreaks. After several days of negotiations with the country’s ambassador and officials on the ground, Kuala Lumpur deemed semiconductors a “critical” industry and allowed the factories to reopen even if they were not at full capacity, senior government officials said. The German and Japanese governments – each with major automotive sectors – also took part in the talks.

The US has similarly worked with the Vietnamese government to ensure factories continue to operate safely even as the country battles Covid outbreaks, officials said.

(Inflation updates in the 14th paragraph.)

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