How Toyota thrives when the chips are down By Reuters

How Toyota thrives when the chips are down By Reuters

© Reuters. FILE PHOTO: 89th Geneva International Motor Show in Geneva


By Norihiko Shirouzu

(Reuters) – Toyota might have pioneered the just-in-time manufacturing technique however when it involves chips, its choice to stockpile what have develop into key elements in automobiles goes again a decade to the Fukushima catastrophe.

After the disaster severed Toyota’s provide chains on March 11, 2011, the world’s greatest automaker realised the lead-time for semiconductors was method too lengthy to deal with devastating shocks resembling pure disasters.

That’s why Toyota got here up with a enterprise continuity plan (BCP) that required suppliers to stockpile anyplace from two to 6 months’ price of chips for the Japanese carmaker, relying on the time it takes from order to supply, 4 sources stated.

And that is why Toyota has to date been largely unscathed by a world scarcity of semiconductors following a surge in demand for electrical items underneath coronavirus lockdowns that has pressured many rival automakers to droop manufacturing, the sources stated.

“Toyota was, as far as we can tell, the only automaker properly equipped to deal with chip shortages,” stated an individual aware of Harman International, which specialises in automotive audio techniques, shows and driver help know-how.

Two of the sources who spoke to Reuters are Toyota engineers and the others are at firms concerned in the chip enterprise.

Toyota stunned rivals and traders final month when it stated its output wouldn’t be disrupted considerably by chip shortages whilst Volkswagen (DE:), General Motors (NYSE:), Ford, Honda and Stellantis, amongst others, have been pressured to gradual or droop some manufacturing.

Toyota, in the meantime, has raised its automobile output for the fiscal 12 months ending this month and jacked up its full-year earnings forecast by 54%.


The supply aware of Harman stated the firm, a part of South Korea’s Samsung Electronics (OTC:), was experiencing shortages of central processing items (CPUs) and energy administration built-in circuits as early as November final 12 months.

While Harman does not make chips, due to its continuity take care of Toyota, it was obliged to prioritise the carmaker and guarantee it had sufficient semiconductors to keep up provides of its digital techniques for 4 months, or extra, the supply stated.

The chips in particularly quick provide now are microcontroller items (MCUs) which management an array of capabilities resembling braking, acceleration, steering, ignition, combustion, tire strain gauges and rain sensors, the 4 sources advised Reuters.

However, Toyota modified the method it buys MCUs and different microchips after the 2011 earthquake, which precipitated a tsunami that killed greater than 22,000 folks and triggered a lethal meltdown at Fukushima’s nuclear energy plant.

In the aftermath of the quake, Toyota estimated its procurement of greater than 1,200 elements and supplies could be affected and it drew up a listing of 500 precedence gadgets that would wish safe provide in the future, together with semiconductors made by key Japanese chip provider Renesas Electronics.

The repercussions of the catastrophe have been so extreme it took six months for Toyota to get manufacturing exterior Japan again to regular ranges, having carried out so at residence two months earlier.

It was an enormous shock to Toyota’s just-in-time system as a result of a easy circulate of elements from suppliers to factories to meeting strains – in addition to lean inventories – have been central to its emergence as an trade chief for effectivity and high quality.

At a time when provide chain threat is now entrance and centre in nearly each trade, the transfer reveals how Toyota was able to throw out its personal rule e-book when it got here to semiconductors – and is reaping the rewards.

A Toyota spokesman stated one in every of the objectives of its lean inventories technique was to develop into delicate to inefficiencies and dangers in provide chains, establish the most probably damaging bottlenecks and determine keep away from them.

“The BCP for us was a classic lean solution,” he stated.


Toyota pays for its stockpiling association with chip suppliers by returning a portion of the value cuts it calls for from them every year throughout the life cycle of any automotive mannequin underneath so-called annual cost-down programmes, the sources stated.

Inventories of MCU chips – which frequently mix a number of applied sciences, CPUs, flash reminiscence and different units – are held for Toyota by elements suppliers resembling Denso, which is partially owned by Toyota Group, chip makers like Renesas and Taiwan Semiconductor Manufacturing, and chip merchants.

While there are completely different sorts of MCUs, these briefly provide now are not cutting-edge chips however extra mainstream ones with semiconductor nodes starting from 28 to 40 nanometres, the sources stated.

Toyota’s continuity plans for chips has additionally cushioned it from the impression of pure disasters exacerbated by local weather change, resembling fiercer typhoons and rain storms which frequently trigger floods and landslides throughout Japan, together with the southern Kyushu area manufacturing hub the place Renesas additionally makes chips.

One of the sources concerned in semiconductor provide, stated Toyota and its associates had develop into “extra risk averse and sensitive” to the impression of local weather change. But pure disasters and are not the solely risk on the horizon.

Automakers worry there can be extra disruptions to chip provides due to rising demand as automobiles develop into extra digital and electrical, in addition to fierce rivalry for chips from makers of good telephones to computer systems to plane to industrial robots.

The sources stated Toyota has one other benefit over some rivals when it involves chips due to its long-standing coverage of guaranteeing it understands all the know-how utilized in its automobiles, reasonably than counting on suppliers to supply “black boxes”.

“This basic approach sets us apart,” stated one in every of the sources, a Toyota engineer.

“From what causes flaws in semiconductors to gory details about production processes like what gases and chemicals you use to make the process work, we understand the technology inside and out. It’s a different level of knowledge that you can’t simply gain if you’re just buying those technologies.”


There has been an explosion in the use of semiconductors and digital applied sciences by automakers this century due to the rise of hybrid and totally electrical automobiles, in addition to autonomous driving and linked automotive capabilities.

Those improvements require much more computing energy and use partially a brand new class of semiconductors referred to as system on a chip, or SoC, which roughly talking combines a number of CPUs on one logic board.

The know-how is so new and specialised many carmakers have left it to large elements suppliers to handle the dangers.

In preserving with its no black field strategy, nevertheless, Toyota developed a deep in-house understanding of semiconductors to organize for the launch of its profitable Prius hybrid in 1997.

Years earlier than, it poached engineering expertise from the chip trade and opened a semiconductor plant in 1989 to assist design and manufacture MCUs used to regulate Prius powertrain techniques.

Toyota designed and manufactured its personal MCUs and different chips for 3 a long time till it transferred its chip-making plant to Denso in 2019 to consolidate the provider’s operations.

The 4 sources stated Toyota’s early drive to develop a deep understanding of semiconductor design and manufacturing processes was a serious motive why it has managed to keep away from being hit by the shortages, along with its continuity contracts.

Two of the sources, nevertheless, stated they have been anxious the Denso deal would possibly point out that Toyota was lastly prepared to ditch its no black field strategy, though the provider is a part of the broader Toyota Group.

“We were okay this time, but who knows what awaits us in the future?” one supply stated. “We may be losing our grip on technology in the name of technological development efficiency.”

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