Mobileye stumble suggests auto supply chain reckoning will be costly

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Semiconductors made by Mobileye help vehicles sense what is down the road and around the corner. If only such technology existed for the company’s strategic planning department.

On Thursday, Mobileye said that its first quarter 2024 revenue would be only half what it achieved a year ago. The Israeli company blamed the shortfall on the stockpiling of chips by its auto manufacturing customers.

In 2020 and 2021, automakers could not source enough chips to meet consumer demand. The years since have involved a complex balancing act to get supply and demand aligned for components, and then the end autos themselves. Mobileye shares slumped more than a quarter on Thursday’s warning; the broader semiconductor sector was hit as well.

Mobileye’s core product is known as a system-on-a-chip (SoC). In 2015 it shipped 4.4mn of them. By 2019 that had jumped 17.5mn. In 2023, SoC shipments will reach 37mn.

Mobileye now says that customers have 6mn to 7mn of excess units. The wafers had been hoarded in response to the difficulties in securing materials in recent years. The reset is sharp enough to flip first-quarter profits into a loss and overall SoC shipments are expected to settle in the low 30 millions.  

The company said equilibrium will be restored later this year. But such tumult is costly in industries known for high capital intensity and production complexity. Mobileye’s equity value fell by $8bn, though its shares at just below $30 remain above its 2022 listing price of $21 a piece.

Manufacturers never want to be left short in meeting precious customer demand. Automakers took the risk of stockpiling amid high prices for components. Suppliers such as Mobileye followed suit in overproducing even as demand for new cars started to soften in the face of high sticker prices on forecourts.

The reckoning now will be expensive as capacity has to be idled. Maybe next time, the perception tools in the corporate suite will be more finely tuned.