Nexperia’s Power Struggle Puts Global Auto Production at Risk
A struggle for dominance over a relatively obscure chip manufacturer has jeopardized global automotive production by disrupting the semiconductor supply chain, although indications suggest that the crisis may be moving closer to a resolution. The ongoing power struggle surrounding Nexperia, a semiconductor manufacturer owned by Chinese interests and based in the Netherlands, underscores the pressing vulnerabilities within technology supply chains that are impacting automotive manufacturers. This situation has notably compelled Honda to suspend production at its Mexican facility, which produces the widely favored HR-V crossover for the North American market. It also reveals how Europe finds itself in the midst of the broader geopolitical confrontation between Washington and Beijing. The turmoil came to light in mid-October, as the Dutch government revealed it had invoked a seldom-used law from the World War II era to assume effective control of Nexperia weeks prior. The Dutch ministry of economic affairs stated that it took action due to concerns regarding national security. Officials stated that they intervened due to significant governance deficiencies at Nexperia, claiming control to avert the potential loss of essential technological expertise that could jeopardize Europe’s economic security. Nexperia’s Chinese owner, Wingtech Technology, which is a partially state-owned company, lies at the center of the dispute. In the midst of the boardroom conflict, a Dutch court has approved the ministry’s request to remove Nexperia’s CEO, Zhang Xuezheng. According to a court filing, American officials informed the Dutch government that he would need to be replaced to prevent trade restrictions.
Nexperia produces straightforward semiconductors, including switches and logic chips. The auto industry, one of Nexperia’s biggest markets, utilizes its chips for various functions, including adaptive LED headlight controllers, electric vehicle battery management systems, and anti-lock brakes. Nexperia, based in the Dutch city of Nijmegen, was established as a separate entity from Philips Semiconductors two decades ago. In 2018, it was ultimately acquired by China’s Wingtech Technology for $3.6 billion. Nexperia operates wafer fabrication plants located in Britain and Germany. It runs an assembly and testing center in Guangdong, China’s southern manufacturing hub, which represents approximately 70 percent of its end-product capacity, along with similar centers in the Philippines and Malaysia. The dispute reflects the larger contention between the US and China regarding technological dominance, placing Europe in a precarious position. The situation arises from Washington’s decision late last year to place Wingtech on its entity list, which subjects companies to export controls due to national security risks. In late September, the US broadened that list to include Wingtech’s subsidiaries, such as Nexperia, urging allies to take similar action.
Following the Dutch government’s assertion of control over Nexperia, Beijing swiftly reacted by blocking the export of Nexperia chips from its assembly plant located in the Chinese city of Dongguan. The Netherlands was held responsible for the turmoil and chaos in the chip supply chain. Following last month’s high-profile meeting between US President Donald Trump and Chinese leader Xi Jinping, there were signs of hope, as the White House announced that Beijing would ease the export ban as part of a US-China trade truce. While Beijing has confirmed that exports will be permitted to resume, Nexperia’s Chinese unit announced that headquarters has suspended shipments of wafers utilized in chip production to its Chinese factory, which could hinder its capacity to deliver completed products. Nexperia’s head office responded in a statement on Wednesday, asserting that the Chinese unit declined to pay for the wafers and accused it of disregarding the “lawful instructions” from its global management team. The company stated that it cannot assure the quality of any chips supplied from its China facility since October 13. Modern automobiles depend on discrete chips produced by companies such as Nexperia, which, in contrast to more sophisticated microprocessors, execute a singular function. During the most recent earnings calls, executives from major automotive manufacturers articulated their concerns, stating that sourcing a scalable alternative to Nexperia in the near term will pose significant challenges. Nexperia accounts for approximately 5 percent of the automotive silicon discrete market in terms of revenue; however, its share is significantly greater when considering discrete chip volume, according to analysts at S&P Global Mobility in a recent note. Nexperia’s components are extensively utilized throughout vehicle systems, often numbering in the dozens to hundreds per vehicle, and car manufacturers in North America, Japan, and South Korea face potential risks, they noted.
It is a concern that spans the entire industry. “A quick breakthrough is really necessary to avoid fourth quarter production losses for the entire industry,” Jim Farley said. Mary Barra cautioned that production might be affected. The company has teams working tirelessly alongside our supply chain partners to mitigate potential disruptions, she said. Ivan Espinosa informed that the company is allocating a provision of 25 billion yen ($163 million) to address supply risks, partly to mitigate the effects of the Nexperia crisis on production. Mercedes-Benz is actively exploring options globally, stated Ola Kallenius. The European Automobile Manufacturers’ Association stated that members such as BMW, Renault, Volkswagen, and Volvo have been compelled to utilize their reserve stockpiles of chips and cautioned about potential assembly line stoppages if they deplete these resources. The European Union’s trade commissioner, Maros Sefcovic, on Saturday remarked on “encouraging progress,” stating that China’s Commerce Ministry had confirmed further simplification of export procedures for Nexperia chips to the EU and global customers. In Beijing, the Commerce Ministry stated on Saturday that it has consented to a Dutch request to dispatch representatives to China for “consultations.” However, it observed that the Netherlands had yet to implement any tangible measures to restore the global semiconductor supply chain, following the Dutch government’s statement just days prior that it would take appropriate steps on our part where necessary. Vincent Karremans stated that “the Netherlands trusts that the supply of chips from China to Europe and the rest of the world will reach Nexperia’s customers over the coming days.” Honda has been informed that Nexperia’s shipments from China have resumed, Executive Vice President Noriya Kaihara stated to reporters on Friday. The Japanese automaker stated that it anticipates resuming production during the week of November 21 at its facility in Celaya, Mexico, which has the capacity to produce up to 200,000 vehicles annually.
