Detroit’s two biggest auto makers, writes The Wall Street Journal (Nov. 19, 2021)—Ford and GM—are looking to get into the semiconductor business, after a year of computer-chip shortages that snarled their global factory output. Ford just announced a strategic agreement with U.S.-based semiconductor manufacturer Global Foundries to develop chips, a pact that could lead to joint U.S. production. GM said it was forging ties with Qualcomm and NXP Semiconductors, to codevelop and manufacture computer chips.
The moves are the latest examples of how pandemic-related disruptions are prompting companies to exert greater control over their supply chains by moving production closer to home, or in some cases in-house. Multinational companies got an early shock in the health crisis when border closings, local restrictions and lockdowns caused chaos. Some have decided on permanent solutions.
Businesses have also continued to face shipping delays. In the auto industry, car companies are starting to unwind decisions made over decades to outsource key components to suppliers. Recent moves by auto makers to vertically integrate (a topic in Chapter 11) by getting into battery production and semiconductors are a modern day nod to when they owned huge parts divisions and operated steel mills.
The semiconductor shortage has scuttled output of millions of planned vehicles industrywide this year. Ford’s move would go a step further by eventually bringing some chip development inhouse. It said designing its own chips could improve some vehicle features—such as automated driving capabilities or battery systems for electric vehicles— and potentially help Ford sidestep future shortages.
GM and Ford exploring the chip business shows how car companies are selectively bringing key technologies in house to develop expertise in areas they see as critical to competitiveness. Better, faster chips, for example, will be needed for everything from multimedia touch screens to remote software updates to fix defects.
The auto industry’s pivot to electric vehicles is also accelerating a shift to vertical integration, with many car companies worried they won’t be able to secure enough battery supplies and raw materials to meet their growth targets. Ford, VW, GM and other major auto makers are teaming with battery companies to build new factories that they say will give them a technical advantage and more stable future supplies.
Classroom discussion questions:
- What are the advantages and disadvantages of bringing chip production inhouse?
- Explain what is meant by “vertical integration.”