4 Trends Driving What’s Next for the German Automotive Market 

It has been a tumultuous few years for the automotive industry, and while some challenges are firmly in the rearview mirror, others sit on the horizon for the coming year. Whether it’s the continued electrification of the modern automobile or restructured supply chains in the wake of COVID-19, change is the only constant in the automotive industry. 

Germany is Europe’s largest automotive market and comprises 20 percent of total German industry revenue. Therefore, it significantly affects the country’s overall economic health. As German automakers look to what’s next, these four trends will drive decision-making in the coming year. 

The automotive industry faces several key concerns, many of which will sound familiar compared to prior years but remain a core focus. For example, the rising demand for EV and charging infrastructure continues to pressure limited component availability and already constrained lead times. 

At the foundation of the supply chain, raw material cost volatility surrounding EV batteries and capacitor production also presents its own concerns. Pair these with shortening qualification, design, and production cycles, and you have a recipe for heightened risk across the automotive value chain. 

Here are four trends automakers should consider in the coming year and how to proactively address them: 

1. A Mounting Fear of Recession 

As OEMs in Europe clear their backlogs and demand for new cars continues to drop, a mounting fear of recession among consumers has many concerned that this will equivalate to a reduction in car sales in the coming year. 

The German car industry accounts for 5% of the country’s economy, and in 2023, the automotive sector continued to grapple with the ongoing fallout from the pandemic and supply chain woes. While the country produced 2.2 million cars in the first half of the year, according to the German Automotive Industry Association, this is still a 10% decrease compared to the first half of 2019, before the pandemic. 

“In view of the overall economic situation and the development of incoming orders, it can be expected that the high growth rates will soon slow down. The high order backlog is slowly being reduced.” 

– Hildegard Müller, President of the German Automotive Industry Association 

Meanwhile, Volkswagen, Europe’s largest automaker, has been facing reduced sales in China (its largest market) as competitors gain ground. Volkswagen reported a 14.5% drop in deliveries to China in the first quarter of 2023, with some recovery later in the year, but ultimately a 1.2% decrease over the same period in 2022. 

The outlook for the automotive industry as a whole remains optimistic, however. The highest forecast sees semiconductor revenue for the industry reaching upwards of $300 billion by 2030 due to ACES (Autonomous driving, Connected vehicles, powertrain electrification, and shared mobility). 

2. OEMs are Cutting out The Middle Man 

Another recent trend is a growing desire from major automotive OEMs to work directly with semiconductor manufacturers and circumvent traditional suppliers (along with the inherent complexities that this creates). 

The Volkswagen Group is leading the charge in this regard, with a recent announcement describing their new electronics component procurement strategy:

“A high degree of transparency in the semiconductor value chain – the exact knowledge of the parts used – enables us to better determine the global demand and availability of these components. This is underscored by risk management which, in future, will extend to the level of individual electronic parts and help us detect bottlenecks early on and avoid them. For strategically important semiconductors and even the Group’s own planned developments in the future, we will rely on direct purchasing from the semiconductor manufacturers.” 

– Dirk Große-Loheide, Board Member for Procurement of Volkswagen Passenger Cars and member of Group management. 

As part of this new strategy, Volkswagen will dictate which electronic components will be used to produce critical parts. This takes power away from the suppliers, but it also allows the OEM to be more agile when bottlenecks occur, identifying appropriate alternatives and reducing downtime.

The company’s risk management focuses on the individual components, which Supplyframe enables through our DSI solutions. This level of focus is critical, primarily when real-time intelligence drives decision-making through prescriptive insights and accurate forecasts.

While it was unheard of in the past for automakers like Volkswagen to sit down with semiconductor manufacturers such as Infineon, NXP, and TSMC, the reality is that now these major players are having discussions with automakers like Volkswagen every few weeks, which illustrates how important this trend will be for the long-term restructuring of automotive supply chains. 

3. The Shift to SiC 

Alongside the rise of electric vehicles, there is a stark increase in demand for chips made from silicon carbide (SiC). Specifically, automakers are racing to secure a supply of SiC-based MOSFETS over traditional IGBTs. 

SiC is well attuned to the needs of EV powertrains, offering higher levels of thermal conductivity, switching efficiency, and electric current density than traditional silicon-based alternatives. 

For automakers and their suppliers, this trend marks an opportunity to prepare for the transition to SiC by qualifying parts, undergoing design changes, and investing in critical areas of the supply chain to support the shift. 

Several major deals have already been struck surrounding this trend. Leading automotive supplier Bosch, for example, acquired U.S. chipmaker TSI semiconductors and invested $1.5 billion to enable the production of SiC chips by 2026. Furthermore, STMicroelectronics (STM) signed a long-term agreement with ZF Group to supply over 10 million SiC devices by 2025. 

The transition to SiC comes with its own challenges, however. The migration from IGBTs to SiC MOSFETS requires higher gate-to-source voltages, creating the need for design and part selection changes. 

The current landscape for these components is also volatile, indicating that challenges will persist well into 2024. SiC devices are experiencing lead times of 39 to 40 weeks, with IGBTs and MOSFETs, in some cases, showing lead times as high as 80 weeks, according to analysis from Supplyframe Commodity IQ. 

Buyers should closely monitor design cycles for EV powertrains to address the need for part changes and supplier selection proactively. 

4. Combating Obsolescence & Lead Times 

The trend that will appear the most familiar to automotive industry leaders is the continued focus on combating obsolescence, extended lead times, and how to create an assurance of supply long-term. 

Demand for analog ICs, in very short supply with lead times of up to 40 weeks, will increase by more than 50% in the next two years. Microcontroller demand will also grow between 20% and 25%. However, the semiconductor capacity to produce these ICs will expand at less than half of both these rates, according to data from Supplyframe Commodity IQ. 

Among these changes in demand, automotive-grade semiconductor suppliers like Infineon, NXP, and STMicroelectronics are “sold out” of capacity into 2024. This also parallels extended lead times for passive components and power transistors. 

The market for MCUs, another high-demand commodity in automotive designs, could grow by as much as 70% in the next five years. 

Mature semiconductor devices will continue to present unique challenges in the future. More than 65% of automotive semiconductors are produced at 130nm or greater. Furthermore, production materials and processes like 200mm wafers and higher than 40nm nodes have their own capacity limitations. 

Obsolescence and assurance of supply are significant concerns in the automotive industry. OEMs rely on the continued availability of parts for years to come. Still, with many parts reaching end-of-life (EOL) status, automakers will need to shift to newer parts and restructure their supply chains accordingly. 

Preparing for What’s Next 

If disruption is a given within the automotive industry, it pays to be prepared. Supplyframe’s DSI solutions provide intelligence for what’s next, offering everything from a bird’s eye view of electronic commodities to component-level insights and the analysis to understand what’s on the horizon for everything in between. 

Real-time intelligence, combined with purpose-built capabilities, places the power firmly in the hands of decision-makers, who can work faster and create more profitable outcomes thanks to better visibility into what’s next across the entire value chain. 

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