How Nexperia Shook the Automotive Industry Again

Located next to a weed-filled lot in Dongguan, southern China's industrial hub, a factory has become an unexpected global bottleneck for automotive chips. Owned by Dutch manufacturer Nexperia, the plant has sparked a new crisis in a sector still recovering from pandemic disruptions, vowing never to repeat past mistakes.

Following issues from Covid-19 and a 2021 fire at a Japanese factory, car manufacturers strengthened their semiconductor supply chains. However, they did not foresee geopolitics turning basic chips into a pressure tool. China's blockade on Nexperia exports exposed the industry's ongoing risks.

Industry experts and consultants agree that the lack of preparation for a political shock has revealed structural vulnerabilities. Automakers like Nissan and Honda cut production, while suppliers like Bosch reduced work hours due to shortages of components costing mere cents.

The crisis began after the Dutch government temporarily took control of Nexperia, citing technology transfer risks to its Chinese owner, Wingtech. Beijing responded by blocking chip exports from the Dongguan plant, which produces essential semiconductors for brakes, windows, and other basic car systems.

Although the Dutch government reversed its decision last week, the dispute's effects continued to ripple through the sector. Interviews with a dozen executives and distributors reveal how minimal inventory models and lack of diversification left many manufacturers without alternatives.

Analysts in China note that even in low-tech segments, Western countries depend on Chinese production. Several experts highlight that the dispute demonstrates Beijing's industrial influence and its ability to impact global supply chains.

Wingtech claims that acquiring Nexperia strengthened the company and criticizes the Dutch government's intervention for risking international supply. Nexperia, on the other hand, states that the sector's global complexity prevents fully anticipating geopolitical impacts.

The vulnerability was exposed even among the largest suppliers. Bosch, purchasing around 200 million euros annually in Nexperia products, lacked sufficient alternatives. Other European manufacturers also lacked secondary sources for these "ordinary and cheap" chips, according to industry sources.

The blockade also caused a sudden change in transaction conditions. Nexperia demanded Chinese customers pay in yuan, leading to inventory buildup ready for shipment as the plant couldn't handle all operations in that currency. The situation has been normalizing in recent weeks.

China partially resumed exports this month, coinciding with a meeting between Donald Trump and Xi Jinping in the South Korean city of Busan. According to industry sources, the reopening prevented imminent shutdowns at companies like Bosch, Aumovio, ZF, or Hella.

Some companies, such as Austria's Melecs or the American JABIL, managed to maintain supply flow through operations with Chinese entities, allowing transactions in yuan. Others, however, continue seeking alternatives to reduce their dependence on Nexperia.

Analysts like Julie Boote from Pelham Smithers Associates believe manufacturers have stumbled over the same issue again. After the pandemic, they promised to stockpile several months of inventory, but in practice, many did not implement lasting measures.

Nissan admits that reconfiguring the global supply chain takes time and that replacing suppliers is not a task that can be completed in a few years. The shortage of Nexperia chips forced the Japanese manufacturer to cut production of its Rogue SUV, one of its best-selling models.

The case also illustrates the technical difficulties in replacing seemingly simple semiconductors. Many are soldered directly into power modules and other components, requiring certification tests that can take months.

Hella, the German supplier, is evaluating alternative sources but warns that testing and approval processes could take up to a year. For industry consultants, the episode is a reminder of the cost of building resilient supply chains.

Experts like Alfredo Montufar-Helu from Ankura Consulting point out that diversification will be necessary but emphasize that the cost will be high. Dependence on China for basic components, they warn, will remain a challenge for the global automotive industry for years to come.