The companies said GlobalFoundries will produce components for GM's chip suppliers in a long-term agreement that offers exclusive capacity for GM.

OAKLAND, Calif/DETROIT, Feb 9 (Reuters) - General Motors Co (GM.N) and chipmaker GlobalFoundries Inc (GFS.O) on Thursday announced a long-term deal for the automaker to secure U.S.-made processors that will enable it to avoid the factory-halting chip shortages that kept millions of cars from being manufactured during the pandemic.

GlobalFoundries said the agreement for at least three years was the first of its kind and establishes a dedicated capacity exclusively for GM’s key chip suppliers at their upstate New York fabrication facility.
The announcement comes two days after President Joe Biden in his State of the Union address praised the passing of the $52 billion Chips and Science Act that aims to bring back chip manufacturing to the United States and points to a new approach by automakers to securing semiconductors.

It also highlights a new way that chip manufacturers can finance U.S. expansion, using a combination of funding from customers that want dedicated capacity for semiconductors and funding from the federal government.

GlobalFoundries Chief Executive Tom Caulfield told Reuters he believes supporting U.S. manufacturing makes the company competitive when seeking some of that funding.

"This is the automaker going right to the manufacturing foundry, reserving the capacity for their needs, making the appropriate co-investments with that foundry so that the best economics take place," Caulfield said.

Caulfield said the GM capacity would be installed in an existing factory upstate New York, but declined to give specifics around how much of the factory's output would be dedicated to the automaker.
GM told Reuters that it is working to streamline how many unique kinds of chips are in its cars. But it is securing capacity for its suppliers to have the chips made because the overall number of chips is expected to rise.

“We see our semiconductor requirements more than doubling over the next several years as vehicles become technology platforms,” Doug Parks, GM head of global product development, said in a statement.

'HAND-TO-HAND COMBAT'
GM rival Ford Motor Co (F.N) said last week that its inability to acquire chips and other supply chain problems contributed to a $2 billion shortfall in fourth-quarter profit compared with the company’s forecasts.

Ford Chief Financial Officer John Lawler, who is also interim head of the automaker’s supply chain operations, told analysts that securing adequate supplies of chips “continues to be hand-to-hand combat.”

Ford is putting “corrective actions in place," Lawler said. "We’ve got better pipelines from brokers and spot buys. And we’re working very closely with our supply chain down to the Tier 2 chip suppliers.”

In late 2021, during the height of the chip shortage, GlobalFoundries and Ford announced a non-binding agreement that could involve increasing production capacity for Ford.

Few details of the Ford arrangement were provided at the time and few have been released since.

Caulfield said GlobalFoundries is talking to almost all the major global automakers, and that the GM agreement does not mean there will not be additional deals with other manufacturers.

By the end of 2023, almost 18 million vehicles will have been removed from production plans since the chip shortage began, according to Auto Forecast Solutions.

The auto chip shortage dramatically changed the way carmakers deal with their chip suppliers, with whom they previously rarely had direct contact.

Several auto companies have now created teams and divisions to better secure chip supply and think about the design of digital platforms for cars going forward.

Chip manufacturers told Reuters last year, it was time for the auto industry to carry some of the burden of the investment for the multibillion-dollar facilities needed for producing chips.

General Motors on Thursday said it has reached a long-term agreement with semiconductor maker GlobalFoundries to increase its future supply of U.S.-made microchips.

The companies said GlobalFoundries will produce components for GM's chip suppliers at its upstate New York headquarters and semiconductor manufacturing site. GM said the partnership is intended to help the automaker reach its goal of using fewer unique chips in its vehicles, resulting in higher-volume chip output and improved supply predictability.

Production is likely at least several years away, given the time it generally takes to get such projects off the ground. The companies did not release specific details about timing or financial elements.

"We see our semiconductor requirements more than doubling over the next several years as vehicles become technology platforms," Doug Parks, GM's executive vice president of global product development, purchasing and supply chain, said in a statement. "The supply agreement with GlobalFoundries will help establish a strong, resilient supply of critical technology in the U.S. that will help GM meet this demand, while delivering new technology and features to our customers."

The deal will create "a dedicated capacity corridor exclusively for GM's chip supply," the companies said in their joint statement.

GM executives have said the automaker plans to cut the number of unique microchips it needs by 95 percent and that it has partnered with a number of semiconductor companies, including Qualcomm Technologies, TSMC and Renesas Electronics Corp.

GlobalFoundries said it is working on other long-term agreements with new and current customers while it also works to expand its capacity.
"We are committed to working with our customers in new and innovative ways to best address the challenges of today's global supply chains," GlobalFoundries CEO Thomas Caulfield said in the statement. "GF will expand its production capabilities exclusively for GM's supply chain, enabling us to strengthen our partnership with the automotive industry and New York State, while further accelerating automotive innovation with U.S.-based manufacturing for a more resilient supply chain."

The deal comes after Congress last year passed the bipartisan CHIPS and Science Act, which aims to strengthen the chip supply chain and help industries obtain more of their chips from U.S. manufacturers instead of China.

"We are bringing manufacturing back to our country and America's supply chains are being secured, creating good-paying jobs here in upstate New York, not overseas," U.S. Senate Majority Leader Charles Schumer, D-N.Y., said in the statement from GM and GlobalFoundries.

In 2021, Ford Motor Co. said it reached a non-binding partnership agreement with GlobalFoundries designed to speed up chip production and supply.

The semiconductor shortage that has constrained production of new vehicles for two years appears to be improving, but still is expected to knock more than 2.8 million vehicles off of production schedules this year, on top of more than 14 million vehicles cut in 2021 and 2022.
Source:Automotive News