General Motors and GlobalFoundries have signed a deal for the production of semiconductors

The global shortage of chips will continue, and consumers will have to pay for it, according to an analyst at International Data Corporation.

Sasirin Pamai | source | Getty Images

General Motors signed a long-term contract with GlobalFoundries the establishment of exclusive manufacturing facilities for the production of US-made semiconductor chips, the companies announced on Thursday.

The deal, which they describe as an industry first, comes as automakers continue to grapple with supply chain issues, including years of global semiconductor chip shortages that have kept factories down at times during the Covid pandemic.

The chip maker will set up dedicated manufacturing facilities exclusively for the Detroit automaker’s key vehicle suppliers at its upstate New York semiconductor plant, the companies said.

“The supply agreement with GlobalFoundries will help establish a reliable and sustainable supply of critical technologies in the US, which will help GM meet this demand while providing our customers with new technologies and features,” said Doug Parks, GM Executive Vice President of Global Product Development. , procurement and supply chain, the statement said.

The deal is a victory for the Biden administration, which is pushing for companies to restore U.S. semiconductor chip manufacturing, including the chip law that was signed into law in August.

Parks said GM expects semiconductor use to more than double over the “next few years” as it increases the technological capabilities of its vehicles, especially all-electric cars and trucks, which require more chips than traditional vehicles.

The companies declined to disclose details such as the cost and amount of added capacity. They expect the deal to enable high-volume production of chips, as well as offer “better quality and predictability, maximizing the creation of valuable content for the end consumer,” the release said.

According to GlobalFoundries CEO Thomas Caulfield, the exclusive production of chips for GM will be an expansion of the New York-based company.

The deal could form the basis for other GlobalFoundries deals, Caulfield said. It provides the best economic performance for both companies and a roadmap for the future materials needed for chip production.

“This is the first of its kind deal, not the last of its kind. This is the solution to the problem,” he told CNBC. “We think it’s a framework that others can use as well.”

Caulfield said exclusive production for GM is expected to take two to three years to really pick up the pace.

Automakers have not historically worked directly with chip vendors. Instead, they allow their major car suppliers to negotiate. However, due to a shortage of semiconductor chips, companies like GM are expanding their supply chains in an attempt to better protect parts for their vehicles.

Semiconductor chips are extremely important components in new vehicles for areas such as infotainment systems and more basic parts such as power steering and brakes. Experts say that depending on the vehicle and its options, there could be hundreds of semiconductors in it. More expensive cars with advanced security and infotainment systems have a lot more than the base model, including different types of chips.

The emergence of chip shortages dates back to early 2020, when Covid caused constant shutdowns of car assembly plants. As businesses closed, wafer and chip suppliers redirected parts to other sectors, such as consumer electronics, that were not expected to be hit by home orders.

Correction: The reason for the shortage of chips dates back to early 2020. In the previous version, the time was incorrect.

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