Paul van Gerven
26 August 2021

NXP failed to anticipate how strongly demand for its automotive chips would grow, but it won’t make that mistake again.

These days, NXP CEO Kurt Sievers is doing something that not so long ago didn’t seem necessary: talking to car manufacturers directly. Previously, his customers, the so-called tier-1 suppliers that build modules out of chips, would take care of that. After all, they’re the ones who need to make sure that car companies get their electronics, just in time of course. It’s NXP’s job to provide the chips, many of which are manufactured at foundries. Interactions within this supply chain were generally limited to one level up or down.

As we’ve seen over the past year, car manufacturers have been paying a high price for this compartmentalization. A shortage of manufacturing capacity at the beginning of the supply chain – at the foundries – has been throwing a wrench in car production, causing tens of billions of dollars in revenue losses worldwide. Had the car companies been paying closer attention to the intricacies of the semiconductor industry, things might not have gotten so bad.

NXP Kurt Sievers
NXP’s Kurt Sievers. Credit: NXP

Hence, Sievers’ close interactions with his customer’s customers these days. “I’m in daily contact with the CEOs of both our tier-1 customers and the car companies themselves, trying to make sure that we can fulfill their most pressing needs, hand-holding shipments day in day out,” the NXP CEO told investors during a conference call discussing Q2 results.

Once the need to manage the current shortage goes away, however, Sievers wants to keep talking, he said in an interview with Bloomberg. That’s because, on top of several disruptions contributing to the shortage, there’s also a structural growth in demand that NXP didn’t see coming, at least not fully. And that’s a mistake Sievers doesn’t want to repeat.


Initially, the automotive chip shortage was explained as a self-inflicted wound of sorts. Car manufacturers were quick to cancel their orders when the pandemic first reared its ugly head and slow to reorder, putting the automotive supply chain at the back of the queue at foundries, which by then had filled up with orders from other sectors. Carmakers had made their beds and now they had to lie in them.

There’s a lot of truth in that. Certainly, the pandemic and its aftermath have exposed the flaws of the car industry’s supply chain model, at least where semiconductors are concerned. As Sievers pointed out to investors, the semiconductor manufacturing cycle of 3-6 months is simply incompatible with the just-in-time logistics of car manufacturing. There needs to be a buffer.

In this regard, automakers are already taking Sievers’ advice. During Ford’s last earnings call, for example, CEO Jim Farley said his company has started building up inventory and is taking a more hands-on approach to sourcing semiconductors. “Risk mitigation actions include stockpiling of critical parts like semis, dual sourcing and design interchangeability in the case of single sources,” he said.

But as NXP already explained last quarter, the current high demand for automotive chips isn’t just a rebound effect from last year’s disruptions. Consider NXP’s H1 2021 automotive revenue, which is up 21 percent from H1 2019 (for a fairer comparison), even though car production is down 13 percent. This can only be explained by higher chip content in cars.

NXP didn’t anticipate that demand growth would be that strong, Sievers admitted. Going forward, however, he won’t be blindsided that easily again because “we’ve gained enormous proximity to car companies” and thanks to these new relationships, long-term forecasting will improve. “We take a lot of learnings out of this,” Sievers assured.