Wang was woken up by a lot of messages in her apartment on the outskirts of Shenzhen. One read, "SPC5744pfK1AMLQ9 300 pc, 21+" Any requirement?
Within minutes, the 32-year-old was at her computer in the living room, getting rid of empty packets of instant noodles. The chip that was referred to in the code was manufactured by NXP Semiconductors Inc. The sender of the message was trying to locate a taker for the 300 that had come into his possession.
Wang is not a legitimate chip dealer. When a worldwide shortage of chips began to disrupt supplies of everything from smartphones to vehicles in the late 2020s, it became more important than ever for independent broker like her. The gray market is filled with second-hand and out-of-date chips that can be purchased for 500 times their original price. The head of China's major car association said that the chip technology export curbs will only make the shortages worse.
The supply of both entry level and more advanced chips has been disrupted by the recent US sanctions. The prices of chips are out of whack.
The world over has seized on the chip shortfall and jacked up the price companies pay for crucial circuital components. China is the biggest global market for cars and is in the throes of a new wave of electric vehicles, which means there are more under-the-table deals here.
In scores of interviews with more than a dozen people involved in this world, all of whom declined to be identified because of the sensitive nature of what they are doing, the complex network operates. The consequences of a fraudulent chip failing in the brakes of a vehicle could be dire.
According to people familiar with the matter, Robert Bosch received several requests from Chinese carmakers to process vehicle components using chips that had beensourced on the gray market. Bosch believed the chips could endanger its own parts. One automaker requested Bosch work with gray-market semiconductors whose price had soared during a Covid outbreak because Bosch's Malaysian supplier had to stop production of the chips used in Bosch's ESP product. Electronic stability programs can be used with a car's antilock braking system. One of the people said Bosch refused because the chip shortage isn't expected to be solved in the next year. The company didn't say anything else.
Wang's is legal in that they are registered companies and pay taxes, but it can be hard to assess the provenance of chips bought and sold on the gray market. It's possible for chips to come from questionable channels, such as back door sales from authorized agents, or legitimate companies that are selling excess chips for a profit, violating agreements with the original chipmakers.
The conventional system whereby auto suppliers place an order through an authorized agent and wait for distribution from an original chipmaker no longer works according to Wang, who asked to only be identified by her last name.
Semiconductors are among the most difficult to find and command the most eye-watering prices. They are used in so many parts of a car. In a world where chips are becoming smarter and smaller, they need less advanced technology to manufacture and command smaller margins.
Carmakers made different responses. Toyota Motor Corp. and Volkswagen AG have pulled back on production and deliveries. Domestic players in China embraced the chip gray market due to the cutthroat nature of the local market.
Unauthorized agents who don't have permission from the original chipmakers have tried to buy chips for the three main Chinese EV upstarts.
Beijing-based Li Auto, known for its flagship Li One sports utility vehicle, paid the equivalent of over $500 to one broker for a single brake chip that cost about $1 before the epidemic.
The representative for Li Auto denied that the company paid more than the original price. The people who spoke for Nio and Xpeng didn't say anything.
The gray-market trade is mostly done online, but it can also be done at physical marketplaces like the Saige Electronics Market Plaza in Shenzhen, where brokers have been known to bring chip samples in knapsacks. In August last year, the government launched a probe into possible price manipulation, fining three brokers a total of 2.5 million dollars for selling car chips with a substantial markup.
There was a secondary chip market in China before the Semiconductor crunch. One unauthorized broker said that everyone is a spec investor.
The most profitable way for a broker to make money is to try to predict demand and then sell them at a profit. Good luck, lots of cash, and a Chinese system of social networks are required for business dealings. It's possible that a bet goes wrong. There are reports of overnight millionaires and suicides.
The manager at the Shenzhen-based company said that anyone with sources can be a broker. The opportunists have messed up the market and companies like us may have some advantage in that regard. We joined it.
When it comes to securing orders at an attractive price, the first to get information is the best. Bribery is not uncommon. People familiar with the matter said chip supplier employees are sometimes paid to steal chips. A person familiar with the situation says that a Chinese car company has begun to dispatch staff to oversee delivery of their chips.
Sometimes a sale will go to the party willing to pay the highest price, but other times it will go to the party with better guanxi. Cash is the preferred method of payment in the gray market.
Intermediaries scrub labels or information on packaging in order to prevent others from tracing the origin of chips.
An associate professor of electronic and computer engineering at Carnegie Mellon University said that used chips can cause problems because they might have been built for too small a temperature range. He has been involved with chip automotive design for 30 years. It's important that chips wear out over time so they don't fail earlier than expected. There is no practical way to detect this problem other than re-doing factory qualifications for temperature ranges and reverse engineering to look for signs of repackaging. He said that these chips can slip into vehicles undetected.
The risk of that happening has spawned a new industry called chip quality inspectors.
In a bid to accelerate the procurement process, several Chinese automakers have appointed people inside to oversee the direct purchase of chips from brokers. The time from quotation to delivery can be as short as 24 hours if the systems are in place. According to Wang Bin, an automotive analyst at Credit Suisse Group AG, Chinese automakers are more flexible in finding solutions to ease the chip supply.
Almost all car companies have decided to compromise by accepting chips with older production dates.
Older chips can be acceptable if they have been well stored. He said that newer vehicles might not have been tested to see if they could survive.
It is difficult for regulators to supervise gray market transactions because it is impossible to detect what used or refurbished chips are in cars.
The State Administration for Market Regulation said thatBrokers are taking advantage of the shortage of auto chips in China. There haven't been any accidents publicly known to have been caused by faulty chips bought on the gray market.
There are signs that the chip shortfall is easing, but that doesn't mean a full recovery is going to happen until at least 2023.
An automaker has to think about a lot of things. Can it find a replacement for some types of chips? Can it change its design to allow for more flexibility in the future? Can levels of integration be raised in the future to combine the functions of several basic chips into one advanced one?
Business should keep going until that point.
She spends most of her waking hours hunched over her laptop at the dining room table, because she is so busy that she rarely goes in to work. She has to stock up on food when things go crazy. She said that they became the go-to guys for urgent supplies. Our clients keep their production lines running.
The assistance was given by Charlie Zhu and others.
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