Nexperia - a new looming crisis for European car manufacturers

(Patria) - European car manufacturers, already hit by US tariffs and the difficult transition to electric vehicles, are now facing a new threat - a shortage of semiconductors supplied by the Chinese company Nexperia, AFP reports.

Beijing is in conflict with Dutch officials who invoked a Cold War-era law in September to effectively take over the company, whose factories are located in Europe. Car manufacturers, as well as parts suppliers, have already warned of shortages that could cause disruptions on production lines across the continent.

Nexperia Company

The company produces relatively simple technologies such as diodes, voltage regulators, and transistors, which are nevertheless crucial, as vehicles increasingly rely on electronics. Chips are mainly found in cars, but also in a wide range of industrial components, as well as in consumer and mobile electronics such as refrigerators. Nexperia produces them in Europe before sending them to China for finishing, and then they are re-exported to European customers.

Headquartered in the Netherlands and formerly part of the electronics giant Philips, it was bought in 2018 by the Chinese company Wingtech Technology. But in September, the Dutch government took the unusual step of taking over the company, invoking its 1952 "Goods Availability Act" to secure essential items. In response, China banned any re-export of Nexperia chips to Europe, sparking new geopolitical tensions.

Why is the automotive sector vulnerable?

Nexperia supplies 49 percent of the electronic components used in the European automotive industry, according to the German financial daily Handelsblatt. The European automotive lobby ACEA has warned that production will be severely affected. "Without these chips, European automotive suppliers cannot produce the parts and components needed to supply vehicle manufacturers, and this therefore threatens production disruptions," the group said. For Germany alone, Deutsche Bank analysts predict a ten percent drop in production, while warning of a thirty percent reduction in the "worst-case scenario".

How are car manufacturers reacting?

German automotive giant Volkswagen (VW) has warned that it cannot rule out "short-term" production disruptions, while emphasizing that it is looking for alternative suppliers. Nexperia does not directly supply VW, but some of VW's parts suppliers use its chips.

Bosch, for example, says it has not yet reduced shifts for its employees in its German plants, "but we are preparing to do so at our Salzgitter plant," a spokesperson told AFP.

French parts manufacturer Valeo said it has "visibility for the coming weeks" regarding "all its components" and has found alternatives for "95 percent of the quantities" purchased annually from Nexperia, but "they have not yet been approved by our clients".

Other suppliers?

According to OPmobility, another French parts manufacturer, Nexperia chips, although widely used, are not "unique" in terms of technology and are therefore "easily replaceable". But suppliers must obtain approval for new products from car manufacturers, which cannot be done quickly.

They are frantically looking for other suppliers, but these firms cannot build production capacity overnight," said Ferdinand Dudenhoeffer, director of the German Center for Automotive Research. "In the worst case, this situation could last twelve to eighteen months," he told AFP.

However, he added that since the disruptions caused by the global lockdowns during the Covid-19 pandemic, "we have learned to pay more attention, both among senior management and among procurement teams."

In any case, Dudenhoeffer said, "one hundred percent protection against supply chain disruptions is impossible - or at least too expensive."