As the world becomes desperate for semiconductors, China has just the solution with stolen and passé chips. But with that is the poor quality that experts say can become life-threatening.

As per a Bloomberg article on October 19, trades of such chips have prospered since 2020. It was when the world was struck with an acute shortage of integrated circuits and causing disruption across many sectors. Cars were significantly affected; they needed sophisticated chips as the industry revolutionized.

Two years later, the shortage had not improved, and the underground market in China blossomed to the point that used or expired chips were sold at hundreds of times their original costs. Hundreds of middlemen have joined the circle. 

According to Bloomberg, Beijing-based Li Auto paid one broker nearly $500 for a single brake chip that cost only $1 before COVID.

But the news agency’s interview with a dozen people from the network reveals a stark reality. Brokers said that many substandard chips had made their way into the supply chain. There is no guarantee of what would happen if they malfunction, especially those used for cars.

The news agency writes, “Should a fraudulent chip fail in the ABS brake module of a vehicle, for example, the consequences could be life threatening.”

Philip Koopman, an associate professor of electronic and computer engineering at Carnegie Mellon University, suggested reused chips may have issues if they were designed for a temperature range that was too narrow.

Koopman said, “Just as important is that chips wear out over time, so reused chips might fail much sooner than expected. I’m not aware of any practical way to detect this problem other than re-doing factory qualifications for temperature ranges and reverse engineering to check for signs of repackaging.”

Intermediaries often remove labels or information from packaging to hide where chips came from. It might be technically impossible to fake-produce chips, and automakers could inadvertently purchase used chips taken from scrap vehicle parts and sold as new.

The buyers

Chinese automakers have tried to talk at least one industry giant into resorting to supply from the gray market. The people said German auto-parts supplier Robert Bosch declined the offer; they feared these substitutions could compromise the integrity of its own parts.

China has about 200 registered electric vehicle producers, and the competition is fierce. Unlike international brands that reduced production during the chip shortage, domestic companies could not resist the temptation.

Reportedly, Nio Incorporated, Xpeng Incorporated, and Li Auto Incorporated have all attempted to purchase semiconductors via unlicensed middlemen. The trio are China’s top producers and are also listed in the U.S.

They claimed that practically all Chinese automakers have tried to obtain semiconductors through this dubious channel. Only BYD Company, the nation’s largest EV maker, was the exception, as the firm produces its own chip.

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