Automotive chipmakers are painting a clear picture of the car industry’s supply-demand imbalance

ON Semiconductor president and CEO Hassane El-Khoury

For evidence of just how dramatically demand for cars is outstripping supply, look no further than earnings reports from some of the top chipmakers to the auto industry.

Onsemi’s third-quarter results blew past analyst estimates Monday, largely because the company’s automotive segment, which accounts for one-third of revenue, grew 37% from a year earlier. The stock jumped 14% following the report and is up 68% for the year.

After markets closed on Monday, NXP Semiconductors, which counts on the auto sector for half its revenue, reported a 26% jump in year-over-year sales, narrowly beating estimates while also providing optimistic guidance.
And last week, after Wolfspeed (formerly Cree) said revenue climbed 36% from the year-ago period, CEO Gregg Lowe told analysts, “We are continuing to see U.S. automakers make big commitments to ramp up their electric vehicle efforts.”

As automakers like Ford and General Motors struggle to procure the components needed to fully rebound from the pandemic-induced supply shortage, chipmakers are selling practically everything they can make and gaining pricing power in the process.

“We’re going to be in a supply-constrained environment for most of calendar ’22, which is a good thing for semiconductors,” Rajvindra Gill, an analyst at Needham, told CNBC’s “Closing Bell” on Monday.

Needham’s Rajvindra Gill says NXP had solid quarter
Even if chipmakers are benefiting from a temporary issue, Gill added, they’re in a position of strength for the foreseeable future, because the automobile is going digital.

While electric cars have specific components related to power, storage and charging applications, all new vehicles are inundated with software for everything from advanced driver-assistance systems and safety alerts to infotainment systems.

“These cars are essentially data centers on wheels,” Gill said. “They’re computers on wheels.”

Hassane El-Khoury, CEO of Onsemi, told analysts on the Monday morning earnings call that his company has entered into long-term service agreements worth over $2.5 billion with customers for the next three years. Most of that is for powering electric vehicles.

El-Khoury said that manufacturers are trying to lock in agreements because consumer demand for EVs is only going in one direction.

“The strength and demand is driven by secular mega trends such as vehicle electrification, ADAS, industrial automation and transition to alternative energy from fossil fuel-based power generation,” El-Khoury said. He followed later in the call saying, “that demand and that ramp is happening. EVs are happening.”

NXP’s earnings call is scheduled for Tuesday morning at 8 a.m. ET