Commerce Secretary Gina Raimondo says it’s time to get “serious” about reviving semiconductor chip production in the United States as the global auto industry pivots to electric vehicles.
“Here’s the reality: We can’t wait, because the rest of the world isn’t waiting,” she said. “China, Taiwan, the EU, other countries all around the world, they are not waiting. They are incentivizing and subsidizing the production of chips right now and have been for a long time.”
The visit by Raimondo, a former governor of Rhode Island and a one-time venture capitalist, comes as the global chip shortage enters its second year, with manufacturing industry executives warning they expect supplies to continue to be constrained in the near term — perhaps even into 2023.
The shortage has been especially challenging for global automakers, hampering production worldwide, leaving dealership lots bare, pushing up prices and limiting choices for consumers. It’s also prompted thousands of autoworker layoffs and furloughs. The shortage could cost the industry an estimated $210 billion in revenue globally this year, according to AlixPartners LLP, a global consultancy tracking the shortage.
Raimondo joined a roundtable discussion at United Auto Workers Region 1A headquarters in Taylor that included Detroit Three executives, members of Michigan’s congressional delegation, auto suppliers, Gov. Gretchen Whitmer, UAW President Ray Curry and Russ Kavalhuna, the president of Henry Ford College. Later, she headlined a Detroit Economic Club meeting with U.S. Rep. Debbie Dingell, D-Dearborn, and Detroit Mayor Mike Duggan.
Raimondo pushed hard for the U.S. Innovation and Competition Act, a bill aimed at increasing U.S. competition with China that would put $52 billion toward domestic chip production. The Senate passed the bill, including a provision spearheaded by Sen. Gary Peters, D-Bloomfield Township, that would set aside $2 billion for the legacy chips used primarily by the auto industry. Backers of the bill said Monday they hope to see it signed into law before year’s end should it be passed by the House.
The bill would create a fund at the Commerce Department to incentivize companies, via grants or loans, to build semiconductor manufacturing facilities in the United States. Some of the funding also could be used for workforce training. Proponents said the bill could help support the establishment of at least six new fabrication facilities across the country.
“We need the folks in Washington, we need the House, to pass the CHIPS Act (funding) immediately so we can get to the business of doing this because the stakes are just that high,” Raimondo told the Economic Club meeting at MotorCity Casino Hotel.
The shortage began about a year ago, when the coronavirus pandemic prompted automakers to cancel orders with suppliers even as competing sectors locked in contracts as demand for consumer electronics skyrocketed.
Demand for autos came roaring back sooner than predicted, leaving the semiconductor industry scrambling to catch up even as it’s been hampered by natural disasters, plant fires and ongoing COVID-19 outbreaks.
U.S. automakers and their sprawling supply bases, meanwhile, are largely dependent on foreign chip suppliers. Currently, about 75% of the world’s semiconductor manufacturing capacity is in Asia, with the majority concentrated in Taiwan.
While the U.S. once produced some 40% of the world’s semiconductor supply, manufacturing losses and offshoring have pushed that to roughly 12% today, with the U.S. purchasing most of its supply from Taiwan. And the U.S. does not produce any of the more technologically sophisticated chips for which demand is expected to be greatest in the future, Raimondo said.
Companies are having an easier time getting their hands on chips compared to the early days of the shortage, said Dan Hearsch, a managing director in the automotive and industrial practice at AlixPartners. But they’re 20 to 30 times more expensive than usual.
It will probably be four to five more months before the industry emerges from “crisis mode,” said Hearsch, and it likely won’t be until mid-year of 2022 before automakers can “turn on overtime and run the plants a lot faster” to make up for lost production.
But the new omicron variant of the coronavirus may complicate that recovery. How different governments around the world respond to the new variant — and how those responses affect industrial users of chips — could extend and amplify the current shortage, he said, though it’s still unclear to what extent.
