Nexperia halts chip supplies to China in threat to global car production | Automotive industry

EU-based automotive chipmaker Nexperia, which is at the center of a geopolitical dispute, has suspended supplies to its factory in China, accelerating a trade war that has threatened automakers around the world withholding production.

The company wrote to customers this week informing them that all supplies to a facility in China had been suspended.

In September, the Netherlands used national security laws to seize control of the chipmaker, raising concerns that the chipmaker’s Chinese owner, Wingtech Technologies, was planning to transfer intellectual property rights to another company it owns. The Dutch government said this Europe threatens future of chip capacityand removed Wingtech chairman Zhang Xuezheng as chief executive officer.

China responded by halting exports from all of Nexperia’s factories in China, prompting warnings this week that the embargo would force production lines at EU car factories to shut down within days.

An extended blockade threatens the supply chain because many Nexperia products produced in Europe (including boards from which chips are cut) had previously been sent to the Chinese factory for packaging and distribution.

Nexperia’s interim chief executive, Stefan Tilger, wrote on Sunday that it had suspended shipments to its Dongguan factory in southern Guangdong province, saying this was “a direct result of the local government’s failure to comply with recently agreed contract payment terms”, according to quotes first published by Reuters.

Nexperia said it hoped to continue shipments and wanted to de-escalate the situation. A person with knowledge of the situation said shipments could continue if contractual payments are made. The company will also continue to ship products to a factory in Malaysia, which is smaller than its factory in China.

A number of car manufacturers have warned of the risk of disruption due to shortages of key components that are crucial in modern cars.

The automotive industry has experienced severe semiconductor shortages in the wake of the coronavirus pandemic, but this has affected more advanced chips rather than cheaper power control chips produced by Nexperia. The company typically ships more than 100 billion items a year for use in parts ranging from airbags to adjustable seats, from side mirrors to central locking.

Nissan said this week it had enough chips to last through the first week of November, while rival Honda said it had suspended production at a facility in Mexico. Mercedes-Benz said this was “closed” in the short term but was looking for an alternative. Volkswagen signaled on Thursday that its annual profit targets were at risk without enough chips.

But Toyota, the world’s largest automaker, told reporters at an auto show in Tokyo on Friday that it did not face a major supply problem even if it eventually faced a hit in production.

EU trade commissioner Maroš Šefčovič will seek further talks with his Chinese counterparts after Chinese and EU officials met in Brussels on Friday to discuss China’s ban on Nexperia exports and restrictions on supplies of rare earth minerals.

Also on Friday, the bloc’s technology commissioner Henna Virkkunen met with Nexperia’s interim boss after seeing European chipmakers Infineon, ST and NXP the day before.

After the meeting, he said that the dialogue with Nexperia had served to underline the EU’s need for a new Chips Act and that it had learned three lessons from the current crisis, including: better visibility of chip stocks on the production line, the need to invest in chip supplies despite the cost, and the need for spare stocks.

“Stockpiling and diversifying supply is critical to our collective resilience,” he said.

The German Automotive Industry Association (VDA) said on Thursday that it feared “significant production restrictions and possibly even production stoppages in the near future” if the situation at Nexperia is not resolved soon.

British operations may also be affected. Nexperia produces some chip wafers at a factory in Manchester built by Dutch manufacturer Philips.

Nexperia previously had another UK factory in south Wales, but was prevented from completing its takeover of Newport Wafer Fab by the UK government on national security grounds due to its eventual Chinese owners. US semiconductor company Vishay Intertechnology eventually agreed to purchase the factory in November 2023.

Wingtech has been approached for comment.