Automaker production stoppages begin over semiconductor shortage

The global car industry has been fretting about the potential fallout over Nexperia, a Netherlands-based chip maker, after the company stopped exporting products from China earlier this month. The issue, which stems from an unusual geopolitical dispute involving the Dutch, Chinese and U.S. governments, has left some automakers and suppliers with low chip supplies that could run out in the coming days, people familiar with the matter say.

While Nexperia doesn’t make cutting-edge semiconductors, the company has a large share of the market for basic chips found in numerous car components. That widespread usage complicates efforts to source a sufficient supply of replacements, if the company doesn’t resume shipments in the near future, executives and analysts warn.

“These are not very strategic components, but there are hundreds of them, small microprocessors in the lock systems, climate control, speedometers or whatever," Volvo Chief Executive Håkan Samuelsson told The Wall Street Journal.

On Monday, Honda cut production in half at its assembly plant in Alliston, Ontario, where workers assemble Civic sedans and CR-V sport-utility vehicles, and will stay slowed through Wednesday, said Vito Beato, president of Unifor Local 1285, which represents workers at a supplier to the plant. In a video posted to Facebook, he said the plant is scheduled to be down for a week starting Thursday, then resume half production late next week.

A Honda spokesman said that the automaker is “managing an industrywide semiconductor supply chain issue" and is making strategic adjustments to carefully manage available parts. Honda began implementing changes, including temporary production suspensions, this week across its “mass production" auto factories in North America, the spokesman said.

The threat of widespread automotive production disruptions comes as President Trump is in Asia to meet with Chinese leader Xi Jinping. Nexperia was thrust into the spotlight after the Dutch government took control of the chip maker following a warning from U.S. officials, according to a Dutch court document: Unless Nexperia’s Chinese chief executive was replaced, the company risked becoming ensnared by a trade blacklist of companies that pose national security risks.

Dutch Economy Minister Vincent Karremans said this month that the decision to seize control of the company wasn’t based on pressure from another country. The government acted because of evidence that Nexperia’s chief executive was moving to shift production capacity, financial resources and intellectual property to China, he said. A Dutch court separately suspended Nexperia’s CEO and put most of the company’s shares under external management.

A spokesman for the Dutch economy minister said Tuesday that Nexperia’s European branch would have effectively disappeared in the short term if the government hadn’t acted.

Shortly after the Dutch government’s move, the Chinese government retaliated by ordering Nexperia’s parent company to suspend exports from China, where 80% of its products are processed before being delivered to customers. Nexperia generated about $2 billion in revenue last year, with about 60% coming from applications in the auto industry.

A Nexperia spokesman referred to a previous statement from the company, which said it is seeking an exemption from the export restrictions and working to mitigate the impacts of the decision.

For weeks, automakers and suppliers have publicly sounded an optimistic tone, pointing to the industry’s lessons from a semiconductor crisis a few years ago that kneecapped production around the world. But this time, auto executives say the situation can’t be resolved simply by purchasing alternative chip supplies on the fly and shifting production schedules.

“It’s something that is going to be solved on a very high level outside our control," Volvo’s Samuelsson said.

European Union and Dutch officials have held calls with their Chinese counterparts since the Dutch decision, and technical talks are set to take place between the EU and China in Brussels on Friday—one day after Trump’s scheduled meeting with Xi.

Friday’s talks are mainly aimed at pressing China to approve more export licenses for rare earths and permanent magnets after Beijing imposed new restrictions earlier this month. But European officials said they also expect concerns about Nexperia to be discussed.

EU Trade Commissioner Maros Sefcovic spoke about Nexperia with Karremans, the Dutch economy minister, on Monday.

“Restoring and securing a semiconductor supply chain is vital for Europe and our global partners," Sefcovic wrote on social media after the call. He added that he appreciates the Netherlands’s efforts to support Europe’s economic security.

If the halt in Nexperia exports from China continues, it could extend beyond the automotive industry and affect manufacturers of other products such as power generators, construction machinery and agricultural machinery, said VDMA, a machinery and equipment manufacturing association based in Germany.

For now, automotive analysts don’t believe the current disruption will dent car production as much as the most recent semiconductor crisis, which stemmed from impacts of the pandemic, a fire at a Japanese supplier and intense storms in the U.S. Key suppliers have also been upbeat, saying that many substitutes exist for Nexperia’s chips.

The problem, however, is that only a limited supply is kept on hand. The stoppage started less than a month ago, and most suppliers typically hold only two to three weeks of Nexperia’s components, Barclays analysts said in a note this week.

Some might stock more inventory, but “chip shortages appear likely to hit automotive suppliers as early as this week," the note said.

Bosch, one of the world’s largest auto suppliers, said the company is preparing to adjust schedules at a German plant that assembles engine control units, but it hasn’t had to do so yet.

“We are currently doing everything we can to serve our customers and avoid or minimize production restrictions," a Bosch spokesperson said.

Suppliers that can secure an alternative source still have to get approvals from automakers to validate those parts.

U.S. automakers have said they are working with both the Trump administration and the Chinese government to resolve the issue before production stoppages have to begin.

Ford Chief Executive Jim Farley said he was in Washington, D.C., last week to discuss the topic.

“We have maximized our buy for these components from other sources as much as we could," Ford COO Kumar Galhotra said on a call with analysts.

“A very quick breakthrough is necessary to avoid fourth quarter production losses," he said. “Not just for us, but for the entire industry."

Write to Ryan Felton at ryan.felton@wsj.com