On July 15, 2021, TSMC, the leader of foundry wafers, held a briefing for institutional investors. TSMC’s president, Wei Zhe-jia, stated that it should increase the output of automotive MCUs in the first half of this year. Compared with last year, the output in the first half of the year increased by 30% and is expected to continue increasing until it reaches 60% - a 30% since pre-period in 2019.

Impact Analysis
       In large, the global automobile industry shut down its factories during the outbreak of the epidemic last year. This helped foundries vacate their production capacity and support large consumer needs from the electronics industry. Coupled with the “just-in-time” inventory management strategy of auto-makers, this has further resulted in an insufficient supply of auto chips as the epidemic gradually slows down. According to the MIC of III, the proportion of outsourcing automotive chips by IDM manufacturing plants is approximately 15%. The products mainly outsourced are microcontrollers (MCU), with 60% to 70% of them manufactured by TSMC. In light of this, the production of auto MCU’s by TSMC has come to occupy a crucial position around the world.
        

The current production of auto chips has mainly adopted 40nm and 28nm processes, accounting for about 18% of production revenue for TSMC. Nonetheless, since this is a mature process, the profit margin is low which affects the performance of TSCM’s gross profit margin. Furthermore, overall wafer production capacity will remain compressed in the short term given that it takes at least one to two years for wafer fab to expand into mass production. With full support to produce automotive chips, this will inevitably squeeze the demands from other application platforms out. In addition, the third quarter has always been the peak season for electronic products, including smartphones and NB, to name a few. Therefore, the output for the season should challenge the management capabilities of various chains and different manufacturers regarding how material shortages can be avoided to sustain the momentum of product sales.