A global shortage of semiconductor chips has put a crimp on automakers’ ability to produce electric vehicles. The shortage is expected to cost the auto industry as much as $110 billion. Now Tesla is seeking ways to solve issues in this part of its supply chain by securing its own stockpile of semiconductor chips.
This could come in the form of paying in advance for them, which comes with the risk that manufacturers might be unable to deliver this critical component due to possible complications related to geopolitics. Tesla is already wrangling with China over the use of its electric vehicles, which appears to have started with the Chinese government banning the parking of Tesla vehicles at government-owned facilities. Sales of Tesla vehicles have been sliding in China in recent months despite record-setting worldwide deliveries in 2020 and Q1 2021.
In vehicles, semiconductors are most often used to enable the electrical components that have replaced purely mechanical systems as vehicles became more technologically advanced. Advances in semiconductors make it possible to extend an electric vehicle’s range and extend its battery life. They are also used in the onboard computers that make driver assist programs like Tesla’s Autopilot and Full Self-Driving software possible.
Many of the chips used in the automotive industry come from Taiwan and South Korea. Taiwan is an island off the Chinese coast and the source of a dispute in which the People’s Republic of China lays claim to it, but others say that it is an independent country officially known as the Republic of China, to which many Chinese Nationalists fled during the Chinese Civil War that ended with a Communist victory in 1949.
Unfortunately, Taiwan is also a major exporter of semiconductor chips. The automotive industry relies heavily on one Taiwanese producer called the Taiwan Semiconductor Manufacturing Company (TSMC), which is the world’s largest semiconductor foundry and produces 12 million semiconductor chips a year. These chips can be routed through several companies that include NXP Semiconductor, Infineon, Intel, STMicro, and Texas Instruments, but TSMC is their ultimate source.
Tesla may not want to jeopardize the source of its semiconductor chips due to ongoing tensions between the United States and China and the dispute over Taiwan. It is also considering the acquisition of a plant that produces semiconductors. Insider sources say that this plan is still in an early stage due to the likely high upfront cost of acquiring a plant. The acquisition process is also likely to take time and there is a possibility that Tesla will consider adding the ability to produce semiconductor chips to one of its existing Gigafactories at some point in the future.
Tesla CEO Elon Musk may favor the latter plan, considering that he has a history of pushing for greater control over supply chains. The company has previously discussed purchasing nickel from mining firms based in North America due to the stronger regulatory controls and potential for more environmentally friendly mining operations. It has also considered a lithium mining operation not far from its factory in Nevada and already produces the majority of the hardware that goes into its cars in-house. For this reason, Elon Musk can more confidently speak of updates to his company’s manufacturing process such as a more efficient battery-making process that uses less water and fewer moving parts.