Tesla will take the unusual step of paying in advance for chips to ensure its supply of crucial materials and is also exploring the acquisition of a plant as part of efforts to overcome the global shortage, according to familiar people. with the matter.
The American electric car manufacturer is discussing proposals to secure chip supply with industry operators in Taiwan, South Korea and the United States, say people, who work in semiconductor industry suppliers, manufacturers of chips and consulting.
They say Tesla’s interest in a direct purchase of a plant was at a much more preliminary stage. In view of the prohibitive costs that will be involved, they said such an acquisition would be difficult. Tesla needs the latest generations of mass-produced chips, which are made mainly in Taiwan and South Korea.
Tesla’s interest in a direct financial commitment to secure capacity comes when the industry ranging from cars to telecommunications equipment manufacturers, such as Cisco, look for new ways to overcome the global chip shortage.
The crunch forced several car manufacturers to leave plants inactive or shut them down. These disruptions are expected to cost the industry 5 percent of estimated sales this year, according to Fitch, the rating agency said.
Some contract chip manufacturers have begun to allow large customers to pay initial deposits to guarantee certain orders at a fixed price. Such a practice was highly unusual for contract chip manufacturers – the flexibility to attribute capacity to the orders of different customers has long been a cornerstone of its profitability.
Tesla showed an appetite to branch out into components when it announced last year plans to make their own battery cells.
The company already has an internal engineering team that designs the high-end semiconductors used in autonomous driving.
“They bought capacity at first, but were actively considering buying their own foundry,” said Ambrose Conroy, founder and CEO of Seraph Consulting, a supply chain consultancy, of Tesla.
But most observers believe that the acquisition and management of a chip plant will be a step too far for vehicle manufacturers like Tesla.
“They see the price for the factory and they come back and line up,” said Velu Sinha, Bain’s partner in Shanghai.
A state-of-the-art laboratory requires investments of up to $ 20 billion and the intricacies of the operation of such plants are notoriously difficult to manage.
A senior Samsung executive, who makes chips for Tesla, said contracting should change as customers sought increasingly specialized and customized semiconductors.
“In view of the current lack of capacity, Samsung may provide dedicated capacity to companies like Tesla, which use chips with a longer life cycle,” said CW Chung, Nomura analyst.
Tesla did not answer questions on the topic. A person familiar with Samsung’s thinking in this matter said that the company has dedicated some production lines to customers and has been open to further discussions.
Other carmakers have begun contracting directly with foundries. The engine groups “will have more direct dealings with chip makers,” said one person advising a European carmaker to turn down their chip supply chain. “This means they have to invest in internal knowledge and it also means dedicated purchasing agreements.”
The change goes beyond the automotive industry. Cisco said it had put money in reserve to reserve capacity with an unidentified contractor.
Last month, six semiconductor design homes closed deal with with United Microelectronics Corporation (UMC) in Taiwan under which the world’s fourth largest chipmaker contractor would expand the technology production capacity mature for them in exchange for financial deposits.
Such arrangements are a departure from the traditional business model. “The moment you block a certain capacity for a customer, that flexibility disappears,” said a semiconductor executive who is familiar with such operations.
For TSMC, the world’s largest chip maker whose gross margin is more than 50 percent, profitability depends on the ability to justify capacity among its numerous customers.
TSMC has long resisted the demands of setting aside a dedicated capacity for any customer. He made an exception only once in 2014 to limit risk from Qualcomm after the U.S. chip maker often changed orders to rival Samsung.
A U.S. official said there was hope for more collaboration for U.S. producers with smaller foundries such as UMC or Taiwanese rival Powerchip, which TSMC with its massive business power had “little interest in specific purchase deals.”
Additional reports from Song Jung-a in Seoul