Industry Predictions for 2025 – Cofactr

By Ed Dodd, VP Business Development, Cofactr

Ed Dodd

The high reliability mature-node semiconductor supply had been weak for years and was on track to be outpaced by automotive demand in the years leading up to 2020.   Just before the supply shortage was able to impact the market, the global COVID pandemic forced the automotive industry to reduce production.  The drop in high reliability demand signal, combined with an increased demand for the consumer and telecom devices associated with remote work, incentivized semiconductor manufacturers to shift their production.  Now, as automotive vehicle production continues to increase and approaches pre-pandemic volumes, we encounter a weakened high reliability semiconductor supply, as advanced node manufacturing grows and mature node manufacturing becomes more concentrated in China.  This all sets the stage for a significant parts shortage that will be felt across all high reliability verticals.

Pre-pandemic Conditions

In the decade leading up to the pandemic, the automotive industry rapidly adopting more electronics in their vehicle designs, fueled in part by stricter regulations that covered everything from exhaust to fuel efficiency to safety [1].  Not only was there more electronics in each vehicle, but automotive production volumes, the number of cars made, were also increasing [2].   As a result, during the period from 2012 to 2019, automotive semiconductor sales increased over 60% from $25.4 billion to around $41 billion.  The expected additional growth in demand for 2020 would have further strained supplies [3], and provided an economic incentive to expand manufacturing.  The COVID-19 pandemic masked these demand signals.

Impact of the COVID-19 Pandemic

In early 2020, as COVID-19 restrictions took effect globally, many people started working from home or stopped working altogether, leading to empty roads and a sharp decline in car usage.  The average one-way commute to work in 2019 was nearly half an hour, with almost 10% of Americans reporting commutes longer than an hour [4].  In 2020, stay-at-home orders led to eerily empty roads and, as cars remained parked at home and used sparingly for trips to grocery stores.  With long-term economic uncertainty and reduced commuting, demand for new vehicles fell.

The same travel restrictions forced many of the automotive manufacturing facilities to close temporarily because of a lack of factory workers, further driving down car manufacturing volumes.  In 2020, global automobile production fell almost 20% [2] when measured by the number of vehicles built.   The sudden production stoppage led to cancellations of regular orders down the supply chain, ultimately impacting automotive semiconductor manufacturers.

Meanwhile, the requirements to work from home drove demand for communications and consumer electronics to unprecedented levels, leading many semiconductor manufacturers to shift production lines away from automotive.  This shift in automotive component capacity might have been more apparent when automotive production attempted to restart in 2021.  However, semiconductor factory fires, plant closures during the Texas freeze, and trade restrictions with China [5] forced car makers to once again slow or stop production at many facilities and continued to provide artificially low demand signals down the supply chain.

Automotive Semiconductors vs. Commercial Semiconductors

Semiconductor node size, or the size of the smallest feature on a chip, keeps getting smaller, shrinking from 60-90nm down to 28 a few years ago and now to 3nm.  The smaller features provide the increase in performance and lower power consumption that cell phones, laptops and high-powered computing thrive on.  While the evolution of feature sizes is driving advances in many technology areas, builders of safety critical systems like airplanes and cars, can not adopt smaller features safely.

Unfortunately, the low power requirements also make advanced node semiconductors more susceptible to noise, while the smaller feature sizes exacerbate wear-out mechanisms like negative bias temperature instability (NBTI) and time dependent dielectric breakdown (TDDB).  Noise susceptibility can lead to erratic or unintentional behavior, while accelerated wear-out increases maintenance costs, neither of which are acceptable for high reliability applications.  Recognizing this, SAE ARP6338 defines life-limited microelectronics as parts made below the 50nm node and prescribes additional testing and analysis requirements for these advanced node semiconductors [6].  Conversely, the mature nodes above 50nm are less prone to these failures and are better suited for automotive and aerospace applications, where thermal stress is significant.

For this reason, overall semiconductor manufacturing volumes cannot be taken as a single monolithic indicator of supply chain health.  Each sector has preferred technology process nodes.  Telecommunications and consumer electronics prefer the smaller process nodes, from 15nm down to 3nm, for higher computational capacity and power efficiency.  Over the past five years, most new semiconductor manufacturing facilities have focused on these smaller nodes to meet high-profile demands like AI, communications, and consumer electronics.

The Return of Automotive Demand

In 2023, an estimated 94 million vehicles were manufactured, nearing the 97 million vehicles produced at the 2018 peak.  In the time since the pandemic, automotive electronics systems have continued to proliferate, especially in connected vehicles and Advanced Driver Assistance Systems (ADAS).  Connecting vehicles to the internet allows manufacturers to gather insights on vehicle condition and usage while selling intelligent services to customers.  The number of 5G cars has grown from near zero in 2021 to an estimated 10% of all cars made in 2024.  ADAS features, including assisted braking, lane-keeping, and advanced cruise control, have also been phased into the market. Electronics content is expected to continue growing, reaching 50% of a vehicle’s overall cost by 2030 [7].

Automotive Semiconductor Supply

The semiconductor industry is also growing, with a 14% increase in 200mm wafer fab capacity from 2023 to 2026, marking 12 new semiconductor fabrication facilities.  The bulk of this expansion is in the more mature nodes, which bodes well for the automotive industry.  The 80nm to 130nm capacity is expected to grow by 10%, while 131-350nm technology will likely grow by 18%.  Ajit Manocha, the President and CEO of SEMI said, “The global Semiconductor Industry’s ramp to a record 200mm fab capacity highlights the bullish expectations for growth in the automotive market in particular” [8]  However, two challenges may define the near-term automotive semiconductor market.

First, the number of analog chips per vehicle, which use the 90nm to 300nm nodes, is expected to increase by 23% in 2026 when compared with 2022, which must be considered in the context of the 10% growth in vehicles manufactured.  Thus, while the 10 to 20% growth in capacity for mature node semiconductors capacity is good news, it may not cover the greater than 35% total expected growth in automotive electronics demand and will continue to exacerbate a market imbalance [9].

Secondly, the geographic distribution of new fabs is crucial.  China is set to grow its number of semiconductor fabs by 50%, likely representing 40% or more of global mature-node semiconductor capacity  [10].  By focusing on mature node growth, China is positioning itself to use capacity in another supply constrained market.  Like China’s use of rare earth minerals for geopolitical and economic gain, their ability to fill a critical market demand in automotive semiconductors will afford them additional leverage.  Between trade restrictions and China’s aggressive regional policy, automakers may not be able to access the totality of the global mature node semiconductor growth reported by SEMI [8].

From Shortage to Crisis?

Shortages to date have been able to be dismissed as related to short-term challenges, like factory fires or weather events.  Over the next few years, however, the underlying supply capacity shortage will become more apparent as demand surpasses pre-pandemic levels, and semiconductor manufacturers find better terms with other industries for their capacity.  The resulting limitations and costs will transition from acute to chronic, prompting both chip manufacturers and automakers to adopt long-term solutions.

While the focus has been on the automotive market, the aerospace and defense (A&D) and industrial sectors face similar supply challenges.  These industries often rely on automotive components to meet high-reliability requirements but lack the bargaining power of automotive demand volumes. As a result, they are even less likely to influence supplier behavior and face a greater risk of shortages as any mature-node capacity is snapped up by automotive customers.  Additionally, the increasing supply share held by China, coupled with mistrust, cybersecurity concerns, and regulations, means these critical industries will have fewer tools to mitigate shortages compared to their automotive counterparts.

About Author:

Ed serves as the Vice Chair of SAE’s Aviation Parts Management Committee and brings 20 years of experience leading cross-functional teams to deliver innovative solutions in software development, systems integration, and strategic planning.

Cofactr offers a dynamic suite of software for managing critical hardware supply chains, enabling speed and accuracy, and optimizing the procurement process. Cofactr empowers hardware teams to get what they need when they need it, linking engineering, procurement, and logistics.

References

Tags: 5G vehicles, ADAS systems, advanced node semiconductors, aerospace and defense, analog chip growth, automotive demand, Automotive Electronics, automotive semiconductors, China semiconductor fabs, COVID-19 impact, global semiconductor capacity, high-reliability electronics, IoT integration, mature-node technology, semiconductor geopolitics., semiconductor manufacturing, semiconductor shortages, supply chain crisis, supply chain imbalance, trade restrictions

Category: Predictions

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