TAIPEI, Taiwan – An expansion drive by Taiwan Semiconductor Mfg. Co. (TSMC), the world's largest contract chip maker, is expected to help U.S. automakers by increasing supply and curtailing supply-chain risks, industry observers say.
TSMC is building new plants in Japan’s Kumamoto Prefecture and Arizona in the U.S.The company is planning for additional sites in Japan and Arizona, as well as in Germany. TSMC’s overseas endeavors will cost $48.6 billion, according to financial statements
As for the Japan plant, scheduled to begin production by 2024, Laveena Iyer, tech and telecoms analyst for the U.K.-based Economic Intelligence Unit, says Japanese auto supplier Denso’s stake of over 10% in the company and the node size of the chips to be produced (12/16nm and 22/28nm) might well shift to catering more to automotive clients.
The Japanese government’s subsidies (¥476 billion [$3.6 billion]), however, are raising concerns that TSMC’s plant may supply only domestic car companies.
By contrast, the Arizona plant could benefit U.S. automakers in the long run even though it will be focused on the lower nodes of chips, which are more advanced and used more by makers of laptops, phones and gaming equipment.
“There is lesser adoption of these chips by carmakers for now, but this could change, as EVs (electric vehicles) advance and the number of chips used in vehicles increase,” Iyer says. “The new plants, once they become operational, will have an impact on chip supply (for U.S. automakers), but the price will also depend on how advanced the chips are, and if TSMC continues to be the only player manufacturing the most-advanced chips, then the company will be in a position to demand a high price.”
It is not yet known whether the key focus of the planned German plant would be on chips for mobile phones or cars.
TSMC’s expansion drive comes against a backdrop of the Chinese military in August 2022 enacting a near de facto blockade of Taiwanese ports as the Chinese government fumed over a visit to the island by former U.S. House Speaker Nancy Pelosi. That incident raised fears of a sudden breakdown of the Taiwan-centric semiconductor supply chain.
“First, TSMC’s overseas fabs should create a bit more certainty for supply of the ASICs (application-specific integrated circuits) the U.S. automakers need, as there is always a cloud of risk that surrounds chips fabricated and shipped from Taiwan or China due to the delicate nature of the relationship that Taiwan has with China,” Tu Le, managing director at Shanghai-based Sino Auto Insights, tells Wards.
“It should also help educate the automakers on the difficult process of mass-producing chips since the fabs will be closer to home as opposed to some far-off place they never get to, and you will see a much more direct relationship between the OEM and the chip fabricator and designer,” he says.
Expectations are growing in Japan’s auto sector that TSMC will commit to building a second cutting-edge microchip plant in Japan. The company’s CEO, CC Wei, stated in a Jan. 12 earnings call that the company is “considering” a plan for a new manufacturing facility, depending on support from the Japanese government.
This followed hints from Yoshihiro Seki, a Japanese Diet member and head of a group within Japan’s ruling Liberal Democratic Party promoting the chip sector, that the Taiwanese giant was close to announcing a new production plant. Seki has called for additional government support.
Koji Endo, an auto sector analyst with Tokyo-based SBI Securities, says the additional expansion plan would be welcomed by Japan’s domestic auto industry which experienced huge supply-chain and production disruptions throughout the coronavirus pandemic.
“There is clearly going to be strong demand for the chips from any new plant they announce, as well as the production facility that they have already started work on in Kumamoto, but we are anticipating that initially, around 10% of the chips will go to the auto sector,” he says. “But 10 years from now, that figure could be up to 20% or even 30% as we know that demand from Toyota and Honda for the chips from Kumamoto is already strong,” Endo says. The plant, in the town of Kikuyo on the southern island of Kyushu, is not expected to be operational until December 2024.
One string attached to the subsidies provided by the Japanese government for the first plant was a commitment for semiconductors to be produced at the plant for at least a decade.
Endo says Tokyo likely will be expected to contribute a similar figure to the second plant to ensure it is built in Japan and supplies Japanese companies instead of overseas rivals, rather than being built in South Korea or another regional auto company.
Japan primarily imports chips from Taiwan or South Korea to feed its industries, meaning production close to Japanese automakers will free up fabrication lines in those countries for export worldwide, including the U.S., notes Endo.
The project is equally appealing to TSMC, he says, due to heightened concern in Taiwan about the threat posed by an increasingly aggressive China, which regards the island as a renegade province and has repeatedly stated its intention to subsume it under mainland control.
“That is, of course, a concern, but their main short-term reasoning behind the Japan plants is that supply and demand for chips is going to be very tight in the future and these are strategic considerations for any country now,” Endo says.
“If a country has a critical industry, such as cars, then it has no choice but to secure a certain number of chips. It makes sense for both sides to have an agreement under which the chip company can manufacture in the country where they are required.”
– with Julian Ryall in Tokyo