21 - 24 June 2023

EV Grows in spite of Semiconductor Shortage

The electronics industry continues to move forward, but Thailand needs a major upgrade to level up its competitiveness.

  • The electronics industry continues to grow in 2022 despite the shortage of semiconductors.
  • In 2021, Thailand’s export value of the electronics industry grew by 16.5% from the same period last year.
  • The demand for certain electronic products has increased due to the changing lifestyle and work patterns related to the COVID-19 pandemic.
  • Thailand needs to fill the gap in the battery industry supply chain to increase the competitiveness of the electric vehicle industry.

The analysis of the Siam Commercial Bank’s Center for Economic and Business Research indicated that last year, Thailand’s total export value of the electronics industry grew 16.5% from the same period last year. Although right now semiconductor shortages, as well as accelerating inflation, are common challenges worldwide, the electronics industry in 2022 continues to expand. This has contributed positively to the downstream industries including the electric vehicle industry which Thailand is actively pursuing.

The main factor contributing to the positive signal in the electronics industry is the rising demand for certain electronic products such as electronic components and computers to accommodate the new lifestyle as a result of the COVID-19 pandemic. Understandably, Thailand’s export of electronic products has grown considerably.

Among the electronics industry’s subsectors, the electronic components industry has a tendency to continue to grow 9.3% compared to the previous year. This growth has been supported by the increasing importance of semiconductors and printed circuit boards in various industries, especially the Factory 4.0 industry, the medical industry and the automotive industry, especially electric cars.

At any rate, while this momentum continues to deliver positive results into 2022, it is likely to slow down this year due to the prolonged shortage of semiconductors in the global market as demand for batteries in electric vehicles worldwide continues to soar. As the supply of lithium becomes scarce, the production of semiconductors become insufficient to meet the market demand. In addition, the conflict between Russia and Ukraine is unlikely to reach conclusion in the near future, thereby forcing lithium mines in Ukraine to stop production indefinitely. Furthermore, the Russian economic sanctions have caused the skyrocketing prices in energy and minerals.

These challenges have been aggravated by the escalating conflict between China and Taiwan following the visit of the speaker of the United States House of Representatives Nancy Pelosi to Taiwan. This event has created a serious impact on the production of many downstream products including electrical appliances and cars, as well as electric cars that rely on semiconductors as engine.

The electronics industry is a manufacturing industry with a long and complex supply chain that consists of 4 main processes: wafer design, wafer manufacturing, wafer assembly and testing, and the final product assembly. The world's largest manufacturers are the ones producing electronic components that require advanced and complex technology with very high added value. The major players include Taiwan Semiconductor Manufacturing Company (TSMC), United Microelectronics Corporation (UMC), and Semiconductor Manufacturing International Corporation (SMIC).

Thailand is neither a supplier of raw materials for the production of EV batteries nor the world's largest semiconductor manufacturer. Therefore, it is faced with a major challenge since it needs to import raw materials like lithium or nickel which affects its cost competitiveness compared to other countries in this region such as nickel-rich Indonesia which has attracted Tesla to set up a factory there.

Since most of the battery manufacturers in Thailand are terminal manufacturers, component producers and battery parts assemblers, all of which are the mid-stream in the supply chain, it is clear that the country still lacks major players in the upstream and downstream. It is essential to diversify the risk of raw material procurement, develop the potential and efficiency of workers as well as adopt digital technology and create business alliances both within and outside the industry. Doing so will help facilitate the collaboration on research and development of products to meet the fast-changing consumer needs.

To achieve a sustainable solution to this challenge, battery operators must expand their business into related businesses such as “raw material procurement” (Backward Integration) through joint investment or by partnering with mineral production companies. Alternatively, they may conduct research and develop cathode/anode/electrolyte solutions to reduce the import of raw materials from abroad which will help increase the business’s competitive ability. It will also help reduce the shortage of raw materials in the production of batteries that will be in high demand in the future.

As we all know, semiconductors are a very important component of every technology being developed in the world now and in the future since it is used to make various "chipsets" and "integrated circuits" that are the "brains" and "neural systems" of machines, cars, mobile phones, computers, smart cards, and many others. Moreover, these “technologies” are vital to driving the global economy forward. Unsurprisingly, semiconductors are a key factor affecting the country's GDP. If Thailand can develop a strong semiconductor industry, it will create a positive effect on all industries in the country. It will mean that Thailand will be able to deliver its own innovations and technologies which will help strengthen national economy. Ultimately, Thailand could graduate from the status of a high-middle income country and become a high-income country in the future.