General Motors signs deal with GlobalFoundries for exclusive U.S. semiconductor production

General Motors has signed a long-term agreement with GlobalFoundries to establish exclusive production capacity of U.S.-produced semiconductor chips, the companies announced Thursday.

The deal, which they’re calling an industry first, comes as automakers continue to battle through supply chain problems, including a yearslong global shortage of semiconductor chips that has sporadically idled factories during the Covid pandemic.

The chip manufacturer will establish dedicated production capacity exclusively for key auto suppliers of the Detroit automaker at its semiconductor facility in upstate New York, according to the companies.

“The supply agreement with GlobalFoundries will help establish a strong, resilient supply of critical technology in the U.S. that will help GM meet this demand, while delivering new technology and features to our customers,” Doug Parks, GM executive vice president of global product development, purchasing and supply chain, said in a statement.

The deal is a win for the Biden administration, which has been pushing for companies to reestablish American production of semiconductor chips, including the CHIPS Act that was signed into law in August.

Parks said GM expects its usage of semiconductors to more than double over the “next several years” as it increases the technological capabilities in its vehicles, specifically all-electric cars and trucks that require more chips than traditional vehicles.

The companies declined to disclose details such as cost and the amount of added capacity. They expect the deal will enable chip production in higher volumes as well as offer “better quality and predictability, maximizing high value content creation for the end customer,” according to the release.

The exclusive production of chips for GM will be an expansion of the New York-based company’s operations, according to GlobalFoundries CEO Thomas Caulfield.

The deal could be a framework for other deals for GlobalFoundries, according to Caulfield. It provides the best economics for both companies and a road map for future materials needed to produce the chips.

“This is a first-of-a-kind deal, not a last of its kind. This is a solution to a problem,” he told CNBC. “We believe it’s a framework for others to leverage as well.”

Caulfield said the exclusive production for GM is expected to take two to three years to really ramp up.

Automakers have historically not directly worked with chip suppliers. Instead, allowing their larger auto suppliers to handle such negotiations. However, the shortage of semiconductor chips has companies such as GM reaching further into their supply chains in an attempt to better secure parts for their vehicles.

Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts such as power steering and brakes. Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors. Higher-priced vehicles with advanced safety and infotainment systems have far more than a base model, including different types of chips.

The origin of the chip shortage dates to early 2020 when Covid caused rolling shutdowns of vehicle assembly plants. As the facilities closed, the wafer and chip suppliers diverted the parts to other sectors such as consumer electronics, which weren’t expected to be as hurt by stay-at-home orders.

Correction: The origin of the chip shortage dates to early 2020. A previous version misstated the timing.