This surge exposed the fragility of the global economy's dependence on semiconductors, particularly those sourced from China and Taiwan, as many companies struggled to acquire the semiconductors they needed to scale production to match consumer demand.
The automobile industry was hit particularly hard—the shortage led to the drop in production of more than 7 million vehicles, causing a 12% drop in global auto sales and a nearly $210 billion revenue loss for the industry. As I have previously written, recovering from the semiconductor shortage requires more than building new factories; it requires companies and their leaders to adopt a new mindset.
In response to the 2021 shortage, nations including the U.S., China, Taiwan and several European countries have invested heavily in developing semiconductor fabrication facilities (fabs), both domestically and in other countries.
The enactment of the CHIPS and Science Act reflects the U.S.’s desire to ensure we are no longer dependent on countries like China and Taiwan for semiconductors and showcases our commitment towards American R&D, education and manufacturing capabilities.
While Congress’s investment of $52.7 billion into American manufacturing incentives, workforce development and supply chain security—including $2 billion specifically for chips used in automobiles and defense technologies—is a step in a positive direction, the US is still years away from no longer needing to rely on China and Taiwan.
While the diversification in fab locations is critical to protect automobile supply chains, the reliance on Chinese and Taiwanese semiconductors in the automobile industry goes well beyond the physical chips.
Even with chip manufacturing in the process of being spread out amongst more countries, much of the intellectual property (IP) that goes into the design, manufacturing and functionality of the chips is housed in China and Taiwan, making it vulnerable to disruption from geopolitical acts or natural disasters.
If that IP becomes unavailable or compromised, it could be tantamount to a shortage of physical chips again for U.S. auto manufacturers, and every car using chips based on and including such IP could potentially have some impact on its functionality.
IP is the backbone of the electronics industry and forms key building blocks in semiconductors, whether it’s through a patent, trade secret, design ownership or design implementation. In an industry driven by rapid technological advancements, IP rights protect inventors’ and companies’ unique designs, technologies and processes, ensuring they can benefit economically from their innovations. Patents, copyrights and trademarks not only incentivize investment in research and development but also help prevent the unauthorized use or replication of cutting-edge technologies. These same protections that are important for innovation and monetization also make IP difficult to transfer to other companies or into other countries, making the IP itself vulnerable.
The geopolitical risks surrounding Taiwan cannot be overstated. Taiwan and China are global hubs for semiconductor manufacturing, especially in the automotive industry. If China were to invade or blockade Taiwan, as many believe is their intention, the impact on IP in the semiconductor industry would be catastrophic. Such an event could lead to severe disruptions in the semiconductor supply chain, not only halting the flow of technology but also risking the theft or misappropriation of proprietary IP.
As modern vehicles can contain up to 3,000 semiconductors—a number expected to grow with the rise of electric vehicles (EVs) and autonomous vehicles (AVs)—they are particularly vulnerable to disruptions in both physical chips and the associated IP. While diversifying the sources of chips from various countries is a positive step toward security and sustainability, a truly resilient auto supply chain must ensure that both semiconductor fabrication and IP are located outside of China and Taiwan. This dual approach is essential to mitigate risks from geopolitical disruptions and to ensure the security, functionality and reliability of automotive technologies.
The stakes are high, and the solutions must be comprehensive. Diversifying manufacturing locations alone is not enough; the industry must also secure the intellectual property that underpins these technologies. Only then can we ensure a stable, secure and resilient supply chain capable of withstanding future shocks.
