European carmakers seek alternatives to Chinese chips

Although China has eased some restrictions on chip exports, the dispute is ongoing and concerns persist. European carmakers are watching the geopolitical shifts reshaping the industry with unease, while seeking ways to reduce their reliance on components made in China.

European carmakers seek alternatives to Chinese semiconductors

According to Bloomberg, citing people familiar with the matter, several European brands are urging their suppliers to secure permanent alternatives to Chinese semiconductors.

Matthias Zink, president of CLEPA, the European Association of Automotive Suppliers, acknowledges that the sector is considering far-reaching supply-chain changes in response to the new environment. “We had already seen signs of this in questions such as, for example, ‘how can you supply us without this dependence on China?’”, he said.

A difficult transition

This shift will be far from straightforward. Altering well-established supply chains is both expensive and complicated. Zink estimates that moving sourcing away from China - whether for batteries, chips or rare earths - could take between three and seven years, depending on the component.

Nexperia chips disrupt European vehicle production

Tensions escalated with the Nexperia case, the Dutch semiconductor manufacturer controlled by China’s Wingtech. China’s government barred exports of chips made by the company’s Chinese division in response to the Netherlands’ decision - taken under US pressure - to temporarily nationalise Nexperia in order to curb Wingtech’s influence.

Amsterdam’s move prompted Beijing to halt exports and cut off supplies of essential chips to Europe, threatening to bring - and bringing - several automotive production lines to a standstill. Nexperia holds more than 20% of the market in its segment.

The fallout was swift. Honda lowered its annual profit forecast after halting production at several factories, while Volkswagen Group and BMW set up dedicated task forces to safeguard semiconductor supplies. Among suppliers, ZF Friedrichshafen and Robert Bosch were also forced to cut output.

Potential replacements for Nexperia include the US companies OnSemi, Vishay and Diodes, as well as Japan’s Rohm.

At present, the chip supply chain relies heavily on international flows, making it one of the most vulnerable links in the China-US confrontation and leaving Europe in a secondary position.

“This is more than a temporary disruption. It is a structural risk: geopolitical decisions can instantly reshape the entire supply economy,” warned Sapna Amlani, head of Moody’s global supply-chain practice, the credit ratings agency.

Only the tip of the iceberg

Beyond the dispute over chips, there are also fears about supplies of rare earths, which are vital for electric vehicle motors and batteries. China holds a dominant position in this area too and has used that advantage as a political tool.

CLEPA says this reliance highlights the risk in the European Union’s decision to move exclusively to electric vehicles from 2035. “We should be under no illusions about this. It will be difficult for decades,” Zink concluded.