DETROIT—The world supply of microchips has been so tight this year that it has shut down vehicle assembly lines. The shortage is a temporary problem, but it also highlights a growing problem for the auto industry: Technologies and vehicles are rapidly changing and new supply chain investments will be necessary to keep up.
Chip fabricator Taiwan Semiconductor Manufacturing Co. shows the sort of commitment that will be needed.
TSMC is investing in a significant new fabrication plant, referred to in the supply chain as a "fab," near Phoenix that could be producing 20,000 12-inch silicon wafers a month by 2024.
But it doesn't come cheap.
The project will require a $3.5 billion investment to get up and running. And that's only the start.
TSMC officials say its long-term plan is to invest $12 billion there by 2029 to keep pace with the growing North American demand for chips. Unofficial reports have said the total investment could end up being as much as three times that.
TSMC, the world's largest semiconductor foundry, is a major chip supplier to Apple and other major global tech companies—not just automotive.
Speaking to investors in January, company CEO C.C. Wei said, "We are entering a period of higher growth, as a multiyear megatrend of 5G, and (high-performance computing)-related applications are expected to fuel strong demand for our advanced technologies in the next several years.
"As we enter the 5G era, a smarter and more intelligent world will require massive increases in computation power and greater need for energy-efficient computing and, therefore, require leading-edge technologies," he said.
The 1,100-acre Phoenix project was long in the works before today's chip shortage hit, said TSMC spokeswoman Nina Kao.
TSMC, which had net revenues of $45.5 billion in 2020 and supplies customers in automotive, mobile phones, high-performance computing and Internet of Things, began considering a U.S. location more than a year ago.
The company's plans weren't to prepare for a possible shortage but to make a strategic move in anticipation of the increasing chip demand.
"We didn't really foresee the chip supply challenges that we are facing right now," Kao told Automotive News. "The current chip shortage is not something that the Arizona fab will be a solution to."
Plant construction is expected to begin this year.
Kao said TSMC has been tracking two technologies. "One is 5G, one is AI. These two megatrends will actually drive the (semiconductor) usage in the future. And we know both 5G and AI are multiyear megatrends that are going to drive devices, and a lot of different innovations or applications."
The Arizona plant will also help TSMC push deeper into a new technology referred to as "5 nanometer" processing. The innovation promises to allow electronic devices to run 15 percent faster than currently, and to be 30 percent more power efficient.
"A lot of customers are already starting to adopt 5-nanometer tech into their designs, including automotive," Kao said. "This is the most advanced semiconductor process technology available in the world.
"Higher computing power and lower energy consumption are going to be what our leading technology customers want to use to adopt into their product design."
Projections for semiconductor growth this year alone signal that the company's massive investment will be timely. The company anticipates the overall market to grow about 8 percent this year.