INSUBCONTINENT EXCLUSIVE:
In her two-bedroom apartment on the outskirts of Chinese tech hub Shenzhen, Wang woke to a deluge of messages
and pulling up a spreadsheet
The code referred to a chip produced by NXP Semiconductors Inc
The sender of the message was trying to find a taker for the 300, made no earlier than 2021, that had come into his possession.
Neither
Wang, nor any of her six-member team, are legitimate chip dealers
a worldwide shortage of chips began to disrupt supplies of everything from smartphones to vehicles
chips where the cost of acquiring just one can run to 500 times its original price
The situation is most acute with chips destined for cars, which are becoming more like computers on wheels as the industry is revolutionized
the price companies pay for the crucial circuital components
the complicated network operates
Should a fraudulent chip fail in the ABS brake module of a vehicle, for example, the consequences could be life
threatening.
Semiconductors required for microcontroller units have been among the hardest to source and command the most eye-watering
Photographer: Qilai Shen/Bloomberg
Leading German auto-parts supplier Robert Bosch GmbH received several requests from Chinese carmakers
to process vehicle components using chips that had been sourced on the gray market by the companies themselves, people familiar with the
Bosch ultimately turned down the requests, believing the chips could risk the integrity of its own parts
One automaker requested Bosch work with gray-market semiconductors whose price had soared during a Covid outbreak because Bosch's Malaysian
A representative for Bosch referred to an interview that Xu Daquan, its executive vice president of China, did in September, in which he
orders with a manufacturer, or legitimate companies that are selling excess chips for a profit, violating agreements with the original
Some of the brokers also try to juice profits by hoarding and price gouging, behavior that violates Chinese regulations and that local
whereby auto suppliers place an order through an authorized agent and wait for distribution from an original chipmaker no longer
reporting by Bloomberg found
In a world where chips are becoming smarter and smaller, they require much less advanced technology to manufacture and therefore command
As demand surged during the pandemic, chipmakers switched production to more profitable semiconductors for use in consumer electronics or
medical devices, greatly reducing the supply of microcontroller unit chips.
Carmakers responded in different ways
and Volkswagen AG largely just pulled back on production and deliveries, while Tesla Inc
found workarounds, developing new software that allowed the pioneering electric vehicle maker to use alternative semiconductors
original chipmakers to distribute their products, according to people familiar with their activities
source semiconductors this way, the people said.
Beijing-based Li Auto, known for its flagship Li One sports utility vehicle, paid the
equivalent of over $500 to one broker for a single brake chip that cost about $1 before the pandemic, people familiar with the matter
said.
In an interview with Bloomberg in July, Li Auto President Kevin Shen said the company was still struggling with some key chip
supplies and expected to continue to face problems given the number of semiconductors required by tech-laden EVs
A representative for Li Auto denied the company paid 500 times the original price for a chip, but declined to comment further for this story
Spokespeople for Nio and Xpeng declined to comment.
The gray-market trade mainly takes place online, in WeChat groups and over email, but
trades also sometimes happen at physical marketplaces like the Saige (SEG) Electronics Market Plaza Huaqiangbei in Shenzhen, where brokers
have been known to bring chip samples in knapsacks to secure orders
In August last year, the government launched a probe into possible price manipulation, fining three brokers a total of 2.5 million yuan
commissions, the most profitable, albeit risky, way to make money is to try to predict demand and hoard chips, offloading them later for
It requires good luck, plenty of cash and lots of guanxi, the Chinese system of social networks and influential relationships that
facilitates business dealings
If a bet goes wrong, it could mean bankruptcy
securing orders at an advantageous price
Chip supplier employees are sometimes paid to steal chips that have been allocated to an automaker, people familiar with the matter said
Aware of such misconduct, one Chinese car company has begun dispatching staff to oversee delivery of their semiconductors
An employee then sits alongside the parts maker's production line to make sure that the chips are used in their products and any left over
are properly locked away, according to a person familiar with the arrangement.
A sale typically goes to the party willing to pay the
highest price but sometimes, having better guanxi trumps that
cash.
To prevent others from tracing where chips have come from, intermediaries often scrub labels or information on packaging
have fallen into the trap of unwittingly buying second-hand chips that have been removed from discarded auto parts and sold as new, people
has spawned another grass roots industry: chip quality inspectors
Typically former employees of chip companies or authorized agents, they claim to have the ability to verify labels and packaging and even to
be able to X-ray the interiors of the chips
Business consultants are also joining the fray, vetting brokers for carmakers and running business credibility checks.
In a bid to
accelerate the procurement process considering how volatile prices are, several Chinese automakers have appointed people internally to
oversee the direct purchase of chips from brokers
In some cases, chip prices may change overnight, every other hour, or even after a purchase inquiry is made
If carmakers have well-oiled systems in place, the time from quotation to delivery can be as fast as 24 hours
Group AG, said at a briefing in May.
However faced with such immediate demand for chips, almost all car companies have chosen to
compromise, at a minimum by accepting chips with older production dates
Before Covid, automakers typically only used chips produced in the past 12 months; now many are using semiconductors made four or five years
supervising gray market transactions
like Toyota and General Motors Co
say the chip shortfall is showing signs of easing, Fitch Ratings Inc
doesn't see a full recovery until 2023, due to the combination of semiconductor shortages, shipping delays and Covid Zero lockdowns,
That means automakers are increasingly being pushed to switch up their long-held strategy of only holding enough inventory for the
immediate future and building in buffers, according to Kenny Yao, a director at Shanghai-based auto industry consultancy
flexibility in semiconductor parts? And in the long term, can levels of integration be raised to combine the functions controlled by several
dining room table or answering WeChat messages from her bedroom
When things get really crazy, she has to stockpile food
