A factory in Dongguan, China, situated next to a weed-ridden lot in the industrial south, has evolved into a critical global bottleneck for automotive semiconductors. This development has upended an industry that, just a few years prior, vowed to avoid future supply-chain disruptions.
Automakers pledged to fortify their supply lines after the COVID-19 pandemic disrupted semiconductor output in 2020, followed by a Japanese factory fire worsening the shortage a year later. However, the recent crisis involving Dutch chipmaker Nexperia’s plant revealed a significant blind spot: the industry never anticipated that low-tech chips could become a geopolitical lever for China against the West. “No one prepared for geopolitical disruption, and they’re still not prepared,” stated Ambrose Conroy, CEO of Seraph Consulting, a firm that advises automakers. In late September, the Dutch government assumed control of Netherlands-based Nexperia, citing concerns about technology transfer to its Chinese owner, Wingtech. Beijing retaliated by halting exports of finished Nexperia chips packaged at the Dongguan facility in the Pearl River Delta. The Netherlands reversed this decision last week, signaling a potential breakthrough. From its Dongguan plant, Nexperia ships semiconductors used in various car components, from brakes to electric windows. These chips sell for mere pennies each, yet their shortage forced Nissan and Honda to cut production and led German supplier Bosch to reduce factory working hours. This account of the industry’s scramble is based on interviews with a dozen individuals, including auto executives, suppliers, and chip distributors. They described how just-in-time inventory practices and limited supply-chain diversification left automakers vulnerable to such geopolitical shocks. The reporting illustrates China’s extensive dominance, which reaches beyond advanced technology and rare earths to include mundane-yet-critical components. It also shows how Beijing can wield this power to paralyze global production. Previously unreported details include the scale of Bosch’s exposure and companies’ challenges with requirements to trade in yuan. While the Dutch government took control of Nexperia’s headquarters in Nijmegen, the Chinese operations remained under the control of its Chinese parent company. “The Dutch thought they had seized Nexperia, but they only took over an office building,” commented Li Xing, a professor at the Guangdong Institute for International Strategies think tank. “What this shows is that, even in mid- and low-end segments, they depend on China. If China wants to get a grip on you, it still can. You have no way out.” A Wingtech spokesperson stated that Nexperia has become an industry leader since its acquisition, adding, “The current crisis shows that breaking up international companies harms supply chains and puts key industries at risk.” China’s commerce ministry did not respond to requests for comment.A Nexperia spokesperson stated that the global complexity of the semiconductor industry makes it difficult to foresee the impact of geopolitics.
A case study on political risk reveals that Nexperia’s chips were considered so affordable and accessible that a European automaker typically did not arrange alternative supplies, according to a person at the carmaker. The chips are described as “very ordinary electronics with low prices.” Most interviewees spoke anonymously to discuss sensitive matters. Alfredo Montufar-Helu, a managing director at Ankura Consulting in Beijing, commented that the Nexperia episode demonstrates manufacturers’ strategic vulnerability extends beyond high-tech components. Despite ordering 200 million euros worth of Nexperia products annually, Bosch initially lacked sufficient ready alternatives, a person with knowledge said. Bosch declined to comment. In late October, Nexperia resumed sales to some domestic distributors but required payment in yuan instead of foreign currency. Reuters reported this change appeared to be a bid for the Chinese business to operate more independently from its Dutch headquarters. Two people briefed said ready-to-ship chips accumulated at the Dongguan plant due to difficulties processing all yuan transactions, though the situation has since eased. A Wingtech spokesperson denied any chip backlog or systems issues with yuan payments but did not elaborate. China permitted some Nexperia exports to resume this month following a meeting between U.S. President Donald Trump and China’s Xi Jinping in Busan. This timing was critical for Bosch and suppliers Aumovio, ZF Group, and Hella, which were days from halting some production, a person briefed stated. Bosch, Aumovio, and ZF declined to comment. A Hella spokesperson said it has maintained supply-chain stability. During a recent weekday visit by Reuters to the Dongguan plant, some blinds were drawn, trucks moved in a docking area, and dozens of scooters were parked outside. Austria’s Melecs and Apple supplier JABIL have sourced chips from Nexperia using Chinese entities to settle in yuan, according to the two people briefed. A Melecs spokesperson declined to comment, and JABIL did not respond to requests. Analysts note automakers failed to learn from past supply shocks. Julie Boote, an autos analyst at Pelham Smithers Associates in London, said the chip shortage showed automakers had not heeded previous lessons and should maintain months of chip supply inventory. Nissan Chief Performance Officer Guillaume Cartier acknowledged that replacing vulnerable supply chains takes time, responding to criticism about not learning from the past by questioning if such a change is possible within three years.The Nexperia shortage forced Nissan to cut production of its top-selling Rogue SUV, Reuters has reported, and poses a continuing risk for this year.
Conroy, the consultant, advises clients to hold extra inventory of critical components in the region where they’re needed. That’s a costly change for an industry that relies on “just-in-time” inventory management to minimize costs. Not all carmakers got whiplashed. Toyota instructs suppliers to stockpile several months’ supply of chips as part of the business continuity plan developed after the devastating 2011 Japan earthquake, Reuters has reported. A Toyota spokesperson said there were risks that could impact vehicle production and they would continue to monitor developments closely. THE COST OF RESILIENCE Another supply speedbump involved how chips are integrated into vehicles. Nexperia semiconductors are widely used in components like power modules, which manage electricity, and are often soldered straight onto the components. That means they can’t just be swapped out for another chip, said Nori Chiou, investment director at White Oak Capital Partners. Any new vehicle component needs to undergo testing that can add months to the process of securing alternative parts, Chiou said. Nexperia’s spokesperson said substitution can’t be completed “overnight” because parts that seem identical can perform differently in vehicles. Germany’s Hella is considering alternative suppliers for Nexperia’s chips but testing and approvals could take up to a year, longer than initially expected, according to one person in the auto-supply industry. Hella’s spokesperson said it was shifting to “already qualified second sources wherever possible” to maintain stable supplies. Ankura Consulting’s Montufar-Helu said preparing for chip choke points will not be easy — or cheap. “Everyone is going to start talking once again about building resilience, about diversification,” he said. “And then they’re going to realise how expensive it is.” ($1 = 0.8672 euros)
