Taiwan Races To Remedy Car Chip Shortage But No End In Sight, Says Economy Minister

Taiwan's semiconductor-makers are racing to end a chip shortage that has forced carmakers to hit the brakes on production.

But the Taiwanese government's economic chief says it is still unclear when the crisis will be over.

Taiwan's Economy Minister Wang Mei-hua told NPR that Taiwanese microchip producers, such as world-leading Taiwan Semiconductor Manufacturing Co., have boosted production this year and are filling more auto-related orders.

Demand for chips from other sectors isn't likely to slacken, though, and with at least a five-month lead time for car chips, she said, it's unclear when the shortage faced by automakers will ease.

"Taiwanese foundries have begun to readjust their capacity and production since the beginning of this year," Wang said in an interview late on Sunday, referring to chip factories.

"In addition, because they have all understood that the shortage in auto chips has created a big impact in that industry, they are willing to adjust the order fill rates of auto chip customers, so that the order rate for auto chips is higher than that of other product categories," she said.

Taiwan's government is offering support on things such as infrastructure, she said, but it's mostly a problem for the companies along the supply chain to resolve.

Modern cars can have thousands of microchips in them to monitor and control things like tire pressure, climate control systems and the radio. Auto manufacturers around the world, from Ford and General Motors to Hyundai and Porsche, have been forced to scale back or halt production of some models due to the chip shortage.

Demand for cars dropped during the height of the coronavirus pandemic but has raced back, creating a lag between supply and demand of car-related chips.

Industry experts think the problem will persist for months. Wang declined to speculate, saying chips often go through intermediaries before landing in carmakers' warehouses, putting the matter out of the hands of Taiwanese chipmakers.

"We don't actually know how long it would take for these auto chips that we have increased supply [of] to reach the end of the supply chain," Wang said.

A severe drought starting last year in Taiwan has compounded problems, forcing microchip manufacturers to scramble for ways to ensure sufficient water supply and economize its use. The semiconductor industry is a large consumer of water.

Wang said water supply is now back to "normal" for industry.

The ripple effects of the chip shortage have cast a spotlight on Taiwan's crucial role as a key source of some of the world's most advanced semiconductors. The shortage also comes at a time of growing tension with Beijing, which claims sovereignty over the self-ruled island and has vowed to bring it into the fold, by force if necessary.

China's government has cranked up pressure on Taiwan with military flights and naval exercises near the island in recent months. It has also been squeezing it on the international stage, where the number of countries that afford Taiwan diplomatic recognition is dwindling.

Wang said the semiconductor shortage was a "unique opportunity" for Taiwan.

"We are very happy to see that because of the current global situation, the world is paying attention to Taiwan," she said. "We believe that this kind of economic situation is also a guarantee of Taiwan's national security."

But the chip bottleneck and heightened geopolitical tensions have spurred planning in both China and the United States for greater self-sufficiency in microchip production.

Not only are tensions high between Taiwan and China, but relations between China and the United States are at their worst in decades, and technology is at the center of the friction between the world's two largest economies.

President Biden, joined by top foreign and domestic policy advisers, met virtually with 19 CEOs this month to discuss the growing shortage of semiconductors, a key component of many computerized electronics.

American chipmaker Intel plans to spend $20 billion on new chip factories that could help address a chip shortage, according to the Wall Street Journal.

Meanwhile, China has been laying the policy groundwork to develop its semiconductor industry, spurred in part by U.S. efforts to limit sales of high-tech products that are deemed likely to help China develop its military. Beijing has poured money into the sector, and Chinese companies have been scrambling to poach semiconductor talent from abroad.

In February, National Economic Council Director Brian Deese wrote a letter to Wang asking for assistance in easing the auto chip shortage.

Wang said Taiwan's leading position in cutting-edge semiconductors, built over decades, and close cooperation with the U.S. in tech puts it in a unique position to continue to lead.

Still, she said the "new situation" between China and the U.S. means that Taiwan companies face the need to diversify production and supply chains, which have been heavily reliant on, and often based in, China.

Incentives to do so by the government of Taiwanese President Tsai Ing-wen led to the biggest wave of reshoring — bringing companies back to the island — in two or three decades, she said, with investment of about $43 billion in Taiwan.

"In addition, if any company is interested in investing in the EU or the U.S. as a diversification of the operation and production, our government will also provide the assistance they need," she said.

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