Business

Another potential microchip shortage is looming, threatening to disrupt automotive production and drive up costs, according to industry analysts. Unlike the widespread shortages of microcontrollers that plagued automakers following the COVID-19 pandemic, the emerging concern centers on dynamic random-access memory, or DRAM, chips crucial for artificial intelligence, infotainment systems, and advanced driver-assistance systems (ADAS).

The shift in focus by chip manufacturers towards high-bandwidth memory (HBM) – a more profitable application for AI data centers – is squeezing supply for the automotive sector. “If you’re in on the automotive-consuming side of this equation,” said Phil Amsrud, an analyst for S&P Global Inc.’s automotive semiconductor research area, “your prices are going to go up and cash flow negatively will be impacted.”

DRAM is essential for the memory storage demands of AI data centers, which have seen explosive growth since the launch of tools like ChatGPT in 2022. According to a report from UBS Group AG, DRAM chip prices have already increased by more than 100%, and automakers are expected to absorb approximately 80% of these increased costs. Suppliers of electronics and ADAS components are considered particularly vulnerable.

“The prices have increased, because there is a lot of demand in general for the memory chips driven by AI,” said David Lesne, a UBS analyst. “But then, if you seem 12-24 months from now, the chips that the auto industry is using — which are a bit more basic and not necessarily so profitable for the memory chip suppliers — and we might be in a situation of more shortages.”

Premium auto brands and electric vehicle manufacturers, particularly those in China, are expected to be the most affected. While vehicles previously relied on hundreds of microcontrollers, DRAM represents a smaller, but still significant, cost component – ranging from $25 to $150 per vehicle, according to UBS.

DRAM chips are particularly vital for vehicles utilizing system-on-a-chip (SoC) technology, which integrates ADAS, infotainment, and vehicle control functions onto a single chip. SoC is a key enabler of zonal electrical architectures, increasingly adopted by automakers like Tesla, Rivian, and several Chinese manufacturers to streamline vehicle design and improve over-the-air updates.

“Those guys can’t build cars without DRAMs,” Amsrud stated. “It’s one of the few times in my recent memory where being a traditional automaker might actually have a little bit of an advantage.” Automakers with more established architectures may have greater flexibility to adjust or remove certain features if necessary.

The automotive industry primarily uses DDR4 and LPDDR4 DRAM, while AI applications largely rely on the newer, more efficient, and higher-capacity DDR5 generation. Chip fabricators are prioritizing production of DDR5 due to its higher profitability. While overall DRAM production capacity is currently sufficient, manufacturers are incentivized to allocate it towards the more lucrative AI market.

“There may be adequate worldwide capacity,” Amsrud said, “but what the memory guys are doing is they’ll take that same unit of capacity and say, ‘I can build high-bandwidth memory for servers, and I’ll make this much money on that, or I can make for automotive and make a lot less with that same unit of capacity.’ If you want it, you can receive it, but you’ll have to pay for it.”

General Motors anticipates that DRAM price increases, along with unfavorable foreign exchange rates and higher material costs, will add $1 billion to $1.5 billion to its costs this year. However, GM CEO Mary Barra stated during an earnings call that the company is proactively addressing potential disruptions. “As of now, we don’t see any issues that are going to impact our ability to produce,” she said.

Ford Motor Co. CFO Sherry House similarly acknowledged the pressure on pricing but expressed confidence in the company’s ability to manage the situation. Ford expects commodity price increases, including those from DRAM, to add approximately $1 billion in costs in 2026, but anticipates offsetting these increases through material and warranty cost reductions.

Stellantis NV is actively monitoring the situation and developing mitigation strategies, according to spokesperson Jodi Tinson. The three dominant DRAM suppliers – Samsung and SK Hynix of South Korea, and Micron Technology Inc. Of Idaho – collectively control more than 90% of global DRAM production, offering some regional supply stability.

Visteon Corp., a digital cockpit electronics supplier, reported 50% year-over-year growth in its memory chip business late last year. The company is exploring alternative suppliers, including emerging manufacturers in China, and seeking cost sharing from customers to address rising prices. “If I look at our full-year demand for this year, we should largely be able to cover customer demand,” Visteon CEO Sachin Lawande said on an earnings call. “There may be some timing impacts that we have to manage.”