Volkswagen strikes direct supply deals for chips to avoid global shortage

Volkswagen has begun purchasing strategically important chips it believes will be in short supply globally directly from 10 manufacturers including NXP Semiconductors, Infineon Technologies and Renesas Electronics the carmaker said on Wednesday. The German carmaker, which previously relied on its component suppliers to purchase chips, began striking direct deals with chipmakers last October to ensure its supply was secure, according to Karsten Schnake, head of a Volkswagen-wide taskforce for component supply founded in 2022. "Global market capacity is not sufficient. We must get active," said Dirk Grosse-Loheide, purchasing chief for Volkswagen's passenger car brand.

Demand for chips has risen dramatically in the car industry in line with electric vehicle production and the need for increasingly complex software. Supply has been slow to follow because of the complexity in setting up chip factories. Volkswagen and Franco-Italian chipmaker STMicroelectronics announced plans last July to co-develop a new semiconductor, marking VW's first direct relationship with a second- and third-rank semiconductor supplier.

Berlin has been courting the world's largest contract chipmakers with billions of euros in subsidies. U.S.-based Intel and Taiwan's TSMC this year announced plans to build factories in Germany. Volkswagen has not struck a direct supply relationship with TSMC - the world's biggest contract manufacturer of semiconductors - but meets with them every few weeks to communicate its demand situation, Schnake said.

The carmaker also plans to reduce the variety of chips required in its vehicles to simplify the supply chain, which will also help simplify its software offering, Schnake added.