Volkswagen Group reorganizes semiconductor supply

Volkswagen Group reorganizes semiconductor supply

The use of semiconductors in the automotive industry will double in the coming years and they will continue to improve in quality. That's why it's important to work closely with suppliers.

Electronic parts and semiconductors are becoming increasingly crucial in the automotive industry and are more and more prevalent inside vehicles. They are elementary for mass production, innovation drivers and key for launching new products on the market. Thus, considering the recent ‘chip crisis’ that has affected the automotive sector in the last two years, the Volkswagen Group is reorganizing the supply chain for these components by adopting a new strategy: the goal is to create long-term stable supply processes that can support the Group's leadership in technology and competitiveness.


How can global demand and availability of these components be determined? "With a high degree of transparency in the semiconductor value chain, with exact knowledge of the parts used. This is why it is important to extend risk management to the level of individual electronic parts, to detect bottlenecks early on and avoid them. For both semiconductors, strategically important elements, and future Group planned developments, we will rely on direct purchasing from manufacturers" explained Dirk Große-Loheide, Board Member for Procurement of Volkswagen Passenger Cars and member of Group management. This will radically change the dynamics of the past, when electronic components, such as ECUs, were procured from first-tier suppliers who were largely free to decide which parts to use. In the near future, however, there will be closer cooperation with Tier 1 suppliers to define which semiconductors and other electronic parts are to be used.

Hardware and Software

To address this significant challenge, ensure semiconductor supply, and protect production, at the beginning of 2022, the Volkswagen Group activated the COMPASS task force. Leveraging the lessons learned during the chip crisis, strategic action areas were identified, and long-term solutions were subsequently developed and implemented. The Semiconductor Sourcing Committee (SSC), on the other hand, was established to work closely with suppliers for all Group brands. Representatives from the procurement and development departments of the brands, as well as from Volkswagen Group Components and CARIAD are involved in this collaboration. "Transparency in the semiconductors value chain will enable us to identify and implement technical alternatives more quickly in case of bottlenecks, while reducing hardware variants leads to a lower degree of software complexity" said Karsten Schnake, Board Member for Procurement at Škoda Auto and head of the cross-brand and cross-functional task force COMPASS (Cross Operational Management Parts & Supply Security).

Electrification and autonomous driving

The increased demand for semiconductors is due to vehicle electrification and the growing use of driver assistance functions, through to fully autonomous driving. This evolution also calls for greater use of cutting-edge chips, while the demand for more common ones will either remain stable or rise further. It's no secret that in recent decades, automotive sector innovations have led to a significant increase in the use of semiconductors: in the late 1970s, a Porsche 911 had a control unit with only eight chips, whereas today, a Škoda Enyaq has around 90 control units, totaling some 8,000 electronic components.

A growing industry

This development of onboard electronics also has an impact on the value of electronic components in each vehicle, which will more than double by 2030, compared to today's average of about 600 euros per vehicle. According to Volkswagen Group's assessment and corresponding analyses, the automotive sector is becoming an increasingly important customer for the chip industry. Today the automotive industry is in 5th place among the major buyers with a global procurement volume for semiconductors of around 47 billion US dollars. By 2030, however, the automotive sector is expected to rise to third place, increasing market volume to around 147 billion US dollars.

Source: Volkswagen AG

VGI | Responsible OU: VP | Creation date: article date | Class 9.1

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