Key companies in the automotive and semiconductor industries are concerned about a potential semiconductor shortage in the second half of 2025 or 2026. However, according to S&P Global Mobility, a shortage is likely but only in mature nodes of 40-nm and above.
One reason given for concern is that a significant number of investments are being made in the development and expansion of fabrication facilities capable of producing state-of-the-art process nodes such as five- or three-nanometre chips and even smaller ones. According to S&P, the shift is driven by demand for higher performance and energy-efficient chips, particularly in sectors such as consumer electronics, data centres and high-performance computing.
This has led to a relative under-investment in mature process nodes, which remain crucial for industries including automotive, industrial and some consumer electronics. According to S&P, these mature nodes are essential for producing chips that do not require the high performance of advanced nodes but are critical for their reliability and cost-effectiveness.
S&P’s electric / electronics and semiconductor team has warned of the persistent structural deficit in chip fabrication capacity for mature nodes. In 2023, the semiconductor industry faced potential overcapacity largely due to reduced demand from sectors such as mobile phones and consumer electronics. However, there is a significant likelihood that supply constraints could resurface if global chip demand in these sectors rebounds. This scenario underscores the ongoing vulnerability in the supply chain for mature process nodes.
The global semiconductor industry continues to grapple with a deficit in chip fabrication capacity, particularly for mature process nodes ranging from 90- to 180-nanometres. S&P says this shortage was somewhat obscured during 2022 and 2023 due to a slowdown in demand, but the risk of constraints on automotive chip supply is expected to resurface by 2025.
According to S&P, several factors contribute to this looming challenge. Firstly, automotive chip inventory levels are projected to be low by the end of 2024, coinciding with a surge in new battery-electric vehicle launches in Europe in 2025 driven by stringent new emission legislation. Additionally, demand from other industries is rebounding, as evidenced by recent market data, and this resurgence in demand could exacerbate the supply constraints for automotive chips.
Some car chip manufacturers and tier 1 suppliers are exerting significant pressure on chip vendors to reduce prices, with some even advocating for a return to pre-COVID-19 pricing levels. S&P says this price pressure could further complicate the supply landscape because if other industries – which often offer better margins – ramp up orders, automotive clients may once again find themselves at the back of the queue, reminiscent of the situation in 2020.
While much of the industry’s attention has been on advanced nodes used for cutting-edge applications, mainland China has strategically focused on expanding its capacity and capabilities in mature process nodes. These mature nodes, typically 40-nanometres and above, remain essential for a wide array of automotive applications including microcontrollers, power management and connectivity chips.
In the event of a significant semiconductor shortage, particularly in the automotive sector, S&P says mainland China’s investments could end up serving as an economic and geopolitical tool.
