Nearly all automakers have been affected by the global shortage of semiconductors, specifically the kinds of sturdy old-school chips that are found throughout today's automobiles. Now, we're starting to see automakers respond by taking control of their chip supply chains -- and while they're at it, moving away from those old-school chips in favor of advanced custom-tailored semiconductors.
In this Motley Fool Live video, recorded on Dec. 9, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear took a look at a recent deal involving Stellantis (STLA -1.35%) and Taiwanese electronics giant Hon Hai Precision (HNHAF 16.87%), better known as Foxconn, and why automakers increasingly see chips as a key differentiator.
A transcript follows the video.
10 stocks we like better than Stellantis
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Stellantis wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of December 16, 2021
Nick Sciple: There's one last chip story, Stellantis. This is the company that has been formed from the combination of Fiat Chrysler and the French automaker Peugeot. They announced a deal with Foxconn to develop advanced auto chips. There have been conversations about how much more involved with Foxconn and some of these other traditionally tech suppliers get in the auto industry, and this appears to be much more involved is the answer. What do you make of the Stellantis-Foxconn tie-up?
John Rosevear: Well, there are two related stories to the chip shortage. First of all, there aren't enough chips for the automakers. Second, the reason there aren't enough is because they have until recently relied on these older style designs that hold up well over time and that serve their function and are inexpensive. The chip manufacturing companies want to move away from those and make more-sophisticated chips that they can get better margins on for personal computers and phones and devices and things like that. There's two parts to this story with Foxconn. First of all, Stellantis is, like everybody else, trying to lock in their own chips supply. Second of all, they are working with Foxconn, or the plan is to work with Foxconn to develop more-sophisticated chips for their cars, which would start rolling out in a year and a half, two years, something like that.
That is also a trend we're seeing. I mean, there was some talk from around that with the GlobalFoundries deal. GM has been talking about that as well and others around the world. Let's go to more-sophisticated chips. Let's take control of our supply chain and get chips tailored for our cars that may offer some sort of advantage. Because when you step back and look at EVs, they're a lot more similar to one another than internal combustion vehicles are. Automakers are thinking about how do we differentiate our products? How do we get people to buy a Ford versus a Chevy? How do we get people to buy even a Tesla versus what may be coming in a few years, a Polestar or something? The answer is software and functionality and features. And if you have your own custom chips, they can play to your strengths and deliver on the features that you want, and so there's that as well here.
Nick Sciple: Yes. I mean, as we see this big wave of EVs come to market, you mentioned this, the strong demand that some of these companies are seeing. You've got to develop the supply chain to deliver those products, and we're seeing that on the chip side with the GlobalFoundries deal. The Stellantis deal to stay with Foxconn that we talked about.
