BMW's Semiconductor Chip Problems May Soon Be Over

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Hopefully, rival carmakers will follow suit.

It's been a rough road for automakers ever since the onset of the global pandemic. First came the lockdowns, forcing factory shutdowns and, therefore, no new vehicles. Once health precautions were put into place, many factories were able to start up again but later encountered another serious problem. The semiconductor chip shortage, and various other supplier-related issues, remain ongoing and analysts predict the crisis won't be completely over until sometime in early 2023.

Carmakers such as BMW are now beginning to lay the groundwork to ensure a consistent flow of critical components, mainly chips. BMW has just announced it's inked a deal with high-tech microchip developer INOVA Semiconductors and chip manufacturer GlobalFoundries.

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The agreement guarantees BMW several million chips annually. They'll be used specifically for the ISELED smart LED technology found on the BMW iX.

"We are deepening our partnership with suppliers at key points in the supplier network and synchronizing our capacity planning directly with semiconductor manufacturers and developers. This improves planning reliability and transparency around the volumes needed for everyone involved and secures our needs for the long term," said Dr. Andreas Wendt, BMW's board member in charge of purchasing. "This pioneering agreement marks the next logical step in securing our supplies in an even more balanced and proactive manner going forward."

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Up until now, most automakers relied on the so-called "just in time" supplier strategy, meaning critical components (like chips) were delivered exactly when they needed to be, not earlier nor later. Typically, this worked just fine but the pandemic shattered that strategy.

Only Toyota, at least initially, was left unscathed by the chip shortage because it had a major stockpile that wasn't cheap to maintain. But Toyota learned harsh lessons following the 2011 tsunami, one of which was to have abundant supplies on hand, regardless of the cost. Eventually, Toyota also succumbed to a chip shortage after exhausting its stockpiles. BMW's new agreement seems to be designed to withstand global disruptions. No one can predict the future but BMW is taking action now with new agreements to make sure the factory lights stay on. We assume other OEMs will take similar steps.

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