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Japan auto parts maker revamps supply chain to fight chip crunch

Nissan-backed Jatco takes aim at shortage that has slowed car industry

Jatco's plant in Shizuoka Prefecture in December 2018. The company's CEO says chip supplies remain tight and are still “very far from what the automotive industry had expected.” (Photo courtesy of Jatco)

TOKYO -- As a microchip shortage sends shock waves through the global car industry, one of Japan's main auto parts makers says it wants to swerve the risk of becoming a production "bottleneck" by revamping the way it manages its supply chains.

The head of automatic transmission producer Jatco told Nikkei Asia in an interview that the company is pushing to make sure it always has enough chips and other key components by placing bigger orders and signing contracts with suppliers earlier than usual.

The move comes as some in the auto industry have begun to shift away from the "just-in-time" methods, which have dominated production for decades and aim to minimize inventory and increase efficiency, as fallout from the coronavirus pandemic upends traditional ways of doing business.

"What we can do right now is to communicate through our supply chain by sharing more forward-looking estimates and securing components," said Teruaki Nakatsuka, chief executive at the company, which is 75%-owned by Nissan Motor. Jatco supplies companies including Nissan and the Japanese car giant's alliance partners Mitsubishi Motors and France's Renault. Suzuki Motor is also among its customers.

Nakatsuka said Jatco has managed to make all its shipments as requested so far, but that it has been under pressure from setbacks such as COVID-19 lockdowns delaying supplies of components from chip assembly and testing hub Malaysia, further up the supply chain.

The CEO said that "securing components" does not mean stockpiling inventories, but committing to larger orders than usual when making procurement decisions with suppliers. Jatco is also sharing parts of its 2022 production plan with them "a few months earlier" and signing contracts sooner than usual.

Jatco Chief Executive Teruaki Nakatsuka says the company will place bigger orders with suppliers and sign contracts earlier than usual. (Photo courtesy of Jatco)

With the global economy clicking back into gear faster than many expected as countries lift COVID restrictions, demand for semiconductors has outstripped supply, especially after appetite for electronic goods such as laptops and household appliances surged during the pandemic. The shortage has forced many carmakers to slash production.

Automatic transmissions use chips, although companies that churn out finished vehicles need "many more of them than we do," Nakatsuka said.

Toyota Motor last month told some of its suppliers to boost their chip inventory levels from three months to five, while Suzuki has asked parts makers to keep enough inventory to last several months.

Over in the U.S., General Motors has said it is bypassing the usual chip suppliers by ordering directly from chipmakers, with Ford Motor reportedly following suit.

Consulting firm AlixPartners estimated in September that the chip shortage will cost the auto industry $210 billion in revenue this year, nearly double its forecast from May, due to the rapid spread of the delta variant and the subsequent lockdowns in Malaysia.

Nakatsuka sees rays of hope as the spread of COVID slows in Southeast Asia and as a Renesas Electronics chip factory in Japan recovers from a fire earlier in the year. But he said that supply is still "very far from what the automotive industry had expected," with carmakers themselves "under much more pain than us."

Looking at the automobile supply chains, including Jatco's, Nakatsuka said it remains difficult to understand to where chip manufacturers are shipping as a priority, complicating the shipment of products for the whole supply chain. "This results in making an agreement for a short period of time, only a few weeks before the shipment," he said.

Longer term, the world's biggest contract chipmaker Taiwan Semiconductor Manufacturing Co. announced last week that it will build a chipmaking plant in Japan. But Nakatsuka said "it is difficult and time-consuming to produce semiconductors in Japan," with added production costs due to increased labor cost.

Meanwhile, Jatco is accelerating its drive into supplying parts for electric vehicles and hybrids. The company, which will produce electric motors for the Nissan Kicks hybrid sport utility vehicles in Thailand by year-end, is set to manufacture EV powertrains in the early 2020s.

An EV powertrain comprises a motor, an inverter and a gearbox -- the latter being what Jatco "has strength in" with mechanical features, the chief executive said, as it has decades of experience in working closely with carmakers.

Indeed, electric powertrains are offering companies other than traditional automakers and parts suppliers a chance to break into the car industry, providing more competition for the likes of Jatco. Japan's Nidec is one such newcomer. The world's largest motor manufacturer, whose products are used in everything from computers, smartphones and refrigerators, has publicly proclaimed a target of supplying 40% to 45% of EV traction motors by 2030.

"Automakers will be extremely busy in the coming years, working on connected cars and other new technologies that were not indispensable when producing internal combustion engine cars," Nakatsuka said.

"So Tier 1 suppliers like us can move closer to carmakers and be more responsible in the basic power performance [of moving, turning and stopping a car] and drivability," he said.

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