Julia Swales interviewed Anders Petersson, an Analyst at Volvo Truck Corporation and FFSC Advisory Board member, to ask him about the IC situation in 2023, following on from an interview in 2021.
In our last interview about the IC shortage, you said that it was mainly consumer driven. Then there was also COVID-19, which resulted in pent-up demand and stimulus packages to boost the economy in the US and Europe, which would you said threw petrol on the fire. So, what’s the situation now?
I would say that things have got better. Both the US and the Europe are putting huge funds aside to actually start building up production facilities for integrated circuits. Around €40 billion will be set aside in Europe. So in the short term, it seems that things are much better in this respect. But there are still supply issues with other parts.
We also have a problem with cybersecurity, SAF Holland which is a major supplier of axle parts was recently hit. This of course is not ICs, but it’s a problem with supply chains, and how vulnerable they are. Around 99% of these attacks are not reported. There’s a lot of hype about hijacking trucks as we move towards increasing the number of automated trucks. But the view is that these attacks are targeted mainly against production and our business systems because you’re more likely to get the ransom paid, which could be huge, knowing what each hour will cost us if we have a production stoppage in any of our major factories here in in Gothenburg or in Ghent. Of course this risk increases, as we are driving towards more connected systems. It is an ongoing trend, as it will be a much more transparent and easily controlled supply chain, maybe through blockchain or other systems, and therefore more vulnerable to attack.
In 2021 you were telling me that the majority of integrated circuits are produced in Taiwan, Japan, South Korea, and the US and Europe have handed over their production. You you could see the negative effects of this and the breaks in the supply chain. Has this trend continued?
It will take years before we change this, because integrated circuit production is perhaps the most advanced production line in the world with very low margins.
China, of course, is striving to be a leader here, but as you said, Taiwan, Japan, South Korea are the major producers there. The US is doing everything they can to hinder that. Europe and the US have the key technologies and China is currently trying to produce the most advanced, integrated circuits of 5 or 10 nanometres. In the truck business it’s not such a big problem, perhaps because it’s not as advanced in terms of computer applications.
Can you tell me about ICs suppliers?
We are in an interesting situation right now. All the OEMs have very high profits. Paccar is leading with an operating margin of about 18%, which is totally mind boggling. The suppliers are now knocking on our door saying we have to pay more and this is of course a battle. We have to pay more so that they can expand their production to meet the market demand. Long term there is also a lot of legislation coming on human rights. The authorities don’t accept that we perhaps say, “Oh, we didn’t know that this fifth-tier supplier is mistreating children”. That’s not acceptable, it never was acceptable. We need to have control over all our suppliers, all the way down to the to the last one, which is tricky to say the least and expensive.
In the last interview you said that several OEMs are slowly starting to manufacture their own ICs but it’s a big challenge and really complicated. So how has that advanced?
I haven’t heard anything since then. I haven’t seen anything that the European or American new OEMs are doing there. Most of us realise this is this is too big to go into. I don’t think it will happen. There is more of a focus on battery factories and that really makes sense. But with integrated circuits, production is so specialised and so complicated, it’s probably out of most of the OEMs’ scope.
Anders Petersson is a Foundation for Future Supply Chain Advisory Board member and Julia Swales is the Future Supply Chain Advisory Board Manager.
Author: Julia Swales
Source: Foundation for Future Supply Chain