Bosch says semiconductor supply chains in the automotive industry are no longer functioning

German technology and engineering group Bosch, which is the world’s largest supplier of automotive parts, believes that semiconductor supply chains in the automotive industry are no longer fit for the purpose for which the shortage is world of chips is raging.

Bosch board member Harald Kroeger told CNBC’s Annette Weisbach in an exclusive interview on Monday that supply chains have collapsed in the past year as demand for chips in everything from cars to PlayStation 5 and electric toothbrushes, has increased worldwide.

Coinciding with the increase in demand, several key semiconductor manufacturing sites have been forced to stop production, Kroeger said.

In February, a winter storm in Texas caused blackouts at NXP Semiconductors, a major supplier of chips for automobiles and cellphones. In March, a fire broke out in Japan at a semiconductor plant operated by Renesas, one of the automotive industry’s largest chip suppliers. In August, factories in Malaysia were abandoned as nationwide closures were introduced to reduce the spread of the coronavirus.

Volkswagen, BMW, and Audi all cut production as they struggled to get the chips they needed to build their cars. These semiconductor companies and suppliers should now be looking to understand how the chip supply chain can be improved, Kroeger said.

“As a team, we have to sit down together and ask ourselves, for the future operating system, is there a better way to have longer lead times,” he said. “I think what we need is more stock on some parts [of the supply chain] because some of these semiconductors need six months to be produced. You cannot run on a system [where] every two weeks you receive an order. It does not work.”

Problems in the semiconductor supply chain have been handled quietly by the automobile in the past, but now is the time for a change, according to Kroeger.

Bosch has built a new 1 billion euro ($ 1.2 billion) semiconductor plant in Dresden – the capital of the German state of Saxony and one of the largest semiconductor clusters in ‘Europe – over the past two years and production started last month.

“The fact that we started building this plant a few years ago shows that we expected a dramatic increase in demand,” Kroeger said.

Other chip heavyweights, including Intel and TSMC, plan to set up new factories in the next few years as part of an effort to increase production.

Kroeger said he expects the chip shortage to continue “until 2022,” adding that he hopes demand will remain stable. “We need to increase supplies in order to be able to meet this demand,” he said.

German President Frank-Walter Steinmeier told CNBC this week that the plant comes at a crucial time for the industry, adding that Germany and Europe are still a long way from achieving digital sovereignty in the production of semi -conductors.

“It is important and right that Bosch has chosen to invest here at a time when we are seeing supply cutbacks in international markets,” he said during a visit to the new Bosch factory.

“I think the current situation gives us an extra boost to be stronger in this area,” added Steinmeier.

The number of people working in the semiconductor industry in Dresden has grown from 45,000 to 70,000 over the past decade, according to Frank Bosenberg, managing director of the Silicon Saxony technology network.

“We expect further growth through 2030 up to 100,000,” Bosenberg told CNBC.

The vast majority of the world’s chips are produced in Asia, with TSMC being the world’s largest chip producer. Europe represents only a fraction of the world’s semiconductor production.

“Europe has 20% demand and less than 10% production right now,” Bosenberg said.

He believes Europe should increase semiconductor production, but noted that it is a global industry and no country even comes close to being self-sufficient.

Dutch semiconductor equipment vendor ASML is the only company in the world capable of manufacturing the machines needed to manufacture the most advanced chips used by Apple.

ASML is a “major asset within the industry,” said Bosenberg.