BMW CEO expects chip investment wave to ease supply crunch

BMW CEO expects chip investment wave to ease supply crunch
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(May 7): BMW AG expects the global shortage of semiconductors hindering automotive production to be resolved as companies and governments zero-in on the issue.

“There’s intense focus on the issue globally, so it’s to be expected for supply and demand to be back in balance within two years at the latest,” BMW Chief Executive Officer Oliver Zipse said in an interview Thursday at the company’s driving academy near Munich.

A lack of chips used in everything from navigation systems to certain rear-view mirrors has forced carmakers to curtail production just as demand picks up in major economies that are easing pandemic restrictions. While Ford Motor Co. last month estimated the scarcity of semiconductors will slash earnings by $2.5 billion this year, BMW has only reported limited stoppages at two European plants thus far

Zipse’s optimistic view contrasts with some of his carmaking peers. Renault SA CEO Luca De Meo said Thursday the chip crisis has exposed the “frightening” fragility of complicated supply lines where whole industries depend on highly specialized manufacturers. What were valid strategies 20 years ago should be revisited, he said.

Volkswagen AG cautioned the semiconductor shortage will become more pronounced in the second quarter, though it still raised its full-year earnings outlook. BMW sent a similarly upbeat message on Friday, saying it expects automotive returns to reach the upper end of its 6% to 8% forecast. Strong demand spreading from China to the U.S. and Europe is helping offset higher prices for raw materials such as copper.

BMW shares rose as much as 0.9% shortly after the open of regular trading in Frankfurt.

Investment boom

The chip shortages that arose after consumers snapped up electronic gadgets en masse while confined at home have spurred broad efforts to boost production. The European Commission plans to double the bloc’s chip production to at least 20% of world supply by 2030, a move that would reduce its reliance on foreign companies for the critical components.

U.S. President Joe Biden has vowed to better secure America’s supply chain by reviving domestic chip manufacturing. Taiwan Semiconductor Manufacturing Co. will spend as much as $28 billion on new plants and equipment this year.

While waiting for investment programs to gather pace, manufacturers have had little choice but to idle plants or take the unusual step of stripping certain high-tech features from select models.

Zipse said BMW has no plans to seek new partnerships or joint ventures despite current restraints.

“For critical components, we’ll stick with long-term supply contracts and a range of different partners,” he said. This will include battery cells critical to accelerating BMW’s rollout of EVs. “From our point of view, we’ve covered the necessary supplies with long-term contracts.”