The auto industry is facing continuing chip shortages and many tier 1-4 automotive suppliers are turning to distributors for parts and services.
Distributors report that sales to tier 1-4 automotive suppliers have grown significantly over the last two years as many semiconductors and other components needed by the automotive industry have been in short supply.
While chip shortages have contributed to distribution sales growth, it is not the only reason distributor business in the automotive segment has grown robustly. Distributors note that electronic content in vehicles continues to increase as automakers design in more sophisticated advanced driver assistance systems, which are chock full of semiconductors and other components. In addition, automakers are increasing production of electric vehicles (EVs), which have a higher electronics content than internal combustion engine automobiles.
As a result, many automotive suppliers that build systems, subsystems and modules for carmakers, need to buy more semiconductors, passives, connectors and other parts. Many of those automotive suppliers, purchase from distributors.
One distributor that has seen its sales from automotive increase over the last several years is Digi-Key. “We have many different customers in this segment from individual engineers, design companies, OEM/ODMs and contract manufacturers,” said Ian Wallace, vice president, Americas and EMEA business development for Digi-Key.
Digi-Key’s global growth was more than 60 per cent in 2021 compared to 2020, and the “automotive market played an important part in that,” according to Wallace. He said semiconductor shortages have helped drive Digi-Key’s business over the past two years.
“Semiconductors have been the biggest area of shortages but there have also been shortage requirements from customers on passive components too, such as MLCCs, resistors and inductors,” said Wallace. But even if there weren’t any shortages, component demand from the automotive segment would have grown, albeit not at the same rate, because of rising electronics usage in automobiles, light trucks and most other commercial and off-road vehicles.
Chip content rises
“The use of electronics in cars has increased steadily with each new model or generation in recent years,” said Wallace. In addition, demand for “certain electronic components is really accelerating due to electric vehicles, electric vehicle chargers and autonomous applications,” he said. Digi-Key supplies a range of components for EVs and chargers including microcontrollers, digital signal processors, power management components such as DC/DC converters and sensors.
Many different kinds of sensors are being used in the latest cars for applications such as voltage control, temperature control, current control, humidity sensors, distance control, speed control/throttle position, seat occupancy and movement/gesture control, said Wallace.
Digi-Key is adding lines to further support the automotive segment. “Yes, Digi-Key has always stocked the newest parts from our growing line-up of authorized manufacturers,” said Wallace. The high-service distributor wants to “provide the broadest range of components to cover as many applications as possible” in the automotive industry, he said. “We are constantly increasing the selection and availability of parts across various product families,” said Wallace.
Automotive is also an important growth segment for TTI, which supplies connectors, passives, electromechanical devices, discretes, circuit protection, sensors and charging couplers to the auto industry.
TTI has seen strong growth from its transportation segment, which includes “anything that moves on land or in water with the exception of military and aerospace,” said Gabe Osorio, director, transportation business unit marketing, Americas for TTI. Cars, commercial trucks, recreational vehicles, boats, trains, all-terrain and agricultural vehicles and other vehicles are part of transportation. However, automotive sales account for 60 per cent of TTI’s revenue in the transportation segment, he said.
“Within transportation, EVs is our fastest growing market segment in transportation,” said Osorio. That could be because more electric vehicles are shipping than just a few years ago and EVs have a higher electronics content than internal combustion vehicles. For instance, the semiconductor content of an internal combustion car is about $620 while content in an EV is about $1,200, according to researcher IC Insights.
The importance of EV
The distributor supplies the same components for EVs that it does to internal combustion engine vehicles: interconnect, passives, electromechanical, discretes, circuit protection, sensors, as well as charging couplers. “TTI has placed a high importance on the EV segment and has a very robust and dedicated strategy to support and grow this market, said Osorio.
“Automotive is a very important if not critical market segment for TTI and our transportation group,” said Osorio. “It grows steadily each year and its share of our business stays pretty level and steady,” he said.
Osorio said TTI has a very “focused and strategic line card especially when it comes to transportation and automotive.” TTI carries components from the world’s top automotive, interconnect suppliers “as well as top suppliers in other technologies,” he said.
“We are not necessarily wanting to grow our line card in terms of suppliers but rather are looking to augment our existing lines with other core technologies crucial to the transportation, EV and autonomous markets,” said Osorio.
Another distributor that has durable sales growth in the automotive segment is Avnet. “We have experienced well over double-digit growth in automotive for the past two years, and there is no indication that this will slow down,” said Jason Skoczen, sales director, lightspeed and transportation of Avnet. The reason for the growth is partially due to the shortages but it is “primarily due to the technology advancements, new emerging companies, and the amount of semiconductor content that is included in passenger vehicles,” Skoczen said.
While Avnet supplies a range of semiconductors, passives and interconnect devices to automotive customers, it also offers them “financial service models and supply chain services. We are also engaging with the OEMs directly and discussing how we can provide logistics services to them,” he said.
Avnet also supplies parts for EV production, including power ICs, interconnect, microcontrollers to auto OEMS, charging station companies and module integrators.
Checking for technology gaps
Avnet will add linecards “if we have any technology gaps for how we need to support the industry,” said Skoczen. Avnet is constantly evaluating the companies on its line card, checking where the market is heading, he said.
Skoczen said automotive has specific requirements that must be met, particularly as regards to safety. “Much of that is handled at the manufacturing and component level. However, we have the ability to provide the necessary documentation that is required to use automotive components,” he said.
Avnet has a dedicated quality team specific to automotive that has a “deep expertise of automotive requirements and certifications to ensure we are meeting our customers’ needs,” Skoczen said.
Wallace said requirements from automotive customers often are different than other customer segments. “Certain markets and applications require different levels of component durability and component traceability and the automotive sector is one of them,” he said. Digi-Key supplies a range of automotive specified parts and provides traceability of parts, which at Digi-Key are all from authorized sources and manufacturers said Wallace.
“We work closely with several automotive customers to ensure the supply of key components, whether for new product introduction or high-mix or low-to-medium production quantities,” he said.
Osorio said that automotive customers are “strict and require significant data such as testing and have design cycles. He added there is a “significant amount of liability” to manage as well as long-term service agreements to support.
TTI’s value proposition supports this type of business. “We are a stocking distributor first. We know that having available-to-sell inventory paired with our unique supply chain solutions such as proximity warehouses, in-plant stores, and APIs, position us to continue to grow with the automotive market and strengthen our position as a preferred supplier partner,” said Osorio.