EU carmakers ‘days away’ from factories halting work in chip war with China | Automotive industry

EU carmakers are “days away” from shutting down their production lines, the industry has warned, as the crisis over the supply of computer chips from China intensifies.

The European Automobile Manufacturers’ Association (ACEA) issued an urgent warning on Wednesday, saying its members, including Volkswagen, Fiat, Peugeot and BMW, were now working on “reserve stocks but supplies are dwindling”.

“The assembly line shutdowns may only occur in a few days. We urge all parties concerned to redouble their efforts to find a diplomatic solution to this critical situation,” said its director general, Sigrid de Vries.

Another ACEA member, Mercedes, is now looking globally for alternative sources of critical semiconductors, according to its chief executive, Ola Källenius.

The chip shortage is also causing problems in Japan, where Nissan’s chief performance officer Guillaume Cartier told reporters at a Tokyo auto show that the company was “only OK for the first week of November” in terms of supplies.

Beijing banned exports of Nexperia chips earlier this month in response to the Dutch government’s decision to take over the Netherlands-based company on September 30 and suspend its Chinese chief executive after the United States reported security concerns.

Last week, carmakers from the UK, EU and Japan, including brands such as Volvo, Volkswagen, Honda and Nissan said banning exports from Nexperia factories in China could disrupt production lines.

“The industry is currently working with reserve stocks, but supplies are dwindling rapidly. According to a survey of our members this week, some are already expecting imminent shutdowns of assembly lines,” de Vries said.

The Nexperia chip ban was a blow to Europe’s auto sector, which has already been hit by President Xi Jinping’s decision to reintroduce controls on rare earth exports amid escalating trade tensions with the United States.

Xi and Donald Trump are expected to sign a trade deal when they meet on the sidelines of a summit in South Korea on Thursday. The proposed deal would suspend the export ban on these essential minerals for a year, but it is unclear whether this will also cover shipments to the EU.

Rare earths, particularly magnets, are used in the automotive industry for window, door and trunk openings, while chips are essential to all electronic components in vehicles, from dashboard functions to ignition and transmission systems.

De Vries said that even if alternative chip suppliers existed, it could take “months to build additional capacity.” She said “the industry does not have much time before the worst effects of this shortage are felt.”

A high-level delegation from Beijing will arrive in Brussels on Friday for negotiations, but there are fears that the diplomatic tools deployed by the EU in recent months will not be as effective as the brutality used by the United States and China.

Andrew Small, senior fellow and China expert at the German Marshall Fund think tank, said: “I think the EU needs a solution very quickly on Nexperia and hopefully there will be progress on that this week. »

Small believes that China’s attitude towards the EU has changed since April, when it learned that US brutality had yielded results.

“This is all part of a new strategy in which China is repeatedly taking steps that bring European industry and other industries around the world to the point of suffocation,” he said. “It’s no longer Europe that’s collateral damage, it’s China that’s targeting Europe and I think people are starting to understand that now. »

De Vries said: “We know that all parties to this dispute are working very hard to find a diplomatic solution. At the same time, our members tell us that the supply of spare parts is already interrupted due to the shortage.”

The Dutch government took control of Nexperia on September 30, citing governance failures. On October 4, China’s Ministry of Commerce blocked exports of the chipmaker’s products outside China. Although most of Nexperia’s semiconductors are produced in Europe, around 70% are packaged in China before distribution.

The company’s Chinese arm took steps toward independence and began selling products to Chinese customers again.

The sources said the Dutch government believed it could negotiate a resolution with China that would restore the company to a unified Sino-Dutch structure.