Nexperia, the automotive semiconductor manufacturer based in the EU and at the heart of the geopolitical tensions, has stopped all supplies to its factories in China, intensifying a trade war that risks shuttering production for automakers globally.

This week, the company communicated with its clients about the suspension of all supplies to its Chinese facility.

In September, the Netherlands utilized national security legislation to take control of the semiconductor maker due to fears that its Chinese owner, Wingtech Technologies, intended to transfer intellectual property to another affiliated company. The Dutch authorities stated: Threatened the future of Europe’s chip production capacity and subsequently dismissed Wingtech Chairman Zhang Xuezheng as CEO.

In retaliation, China ceased exports from all Nexperia factories and warned that this embargo could lead to the closure of production lines at EU car manufacturers within days.

The continuing lockdown jeopardizes the supply chain, as numerous Nexperia products produced in Europe—including wafers used to manufacture chips—were typically sent to factories in China for packaging and distribution.

Nexperia’s interim CEO, Stephen Tilger, stated on Sunday that shipments to its Dongguan factory in Guangdong province have been halted due to a “direct result of local management’s recent failure to comply with agreed contractual payment terms,” according to excerpts first released by Reuters.

Nexperia remains optimistic about resuming shipments and is hoping to de-escalate the situation. A source familiar with the developments indicated that shipments might recommence once contractual payments are made. Additionally, the company will continue sending products to its Malaysian facility, which is smaller than the Chinese one.

Automakers are expressing concerns over potential disruptions caused by shortages of crucial components essential for modern vehicles.

The automotive sector faced severe semiconductor shortages following the coronavirus pandemic, but it was not Nexperia’s lower-cost power control chips that were impacted—it was more advanced chips. The company usually ships over 100 billion items annually, utilized in various applications from airbags and adjustable seating to side mirrors and central locking.

Nissan Motor Co. announced this week that it has sufficient chips to last until early November, while competitor Honda reported halting production at its Mexican facility. Mercedes-Benz described its situation as “manageable” in the short term, yet is exploring alternatives. Volkswagen suggested that its annual profit goals could be compromised without adequate chip supply.

Conversely, Toyota, the world’s largest automaker, informed reporters at an auto show in Tokyo on Friday that it is not experiencing significant supply challenges, even though production might ultimately be affected.

EU trade commissioner Maroš Šefčović aims to initiate further discussions with Chinese officials following meetings in Brussels with both Chinese and EU representatives to address the export ban on Nexperia and restrictions on rare earth minerals supply.

Additionally, on the same day, the bloc’s technical commissioner Hena Virkunen met with Nexperia’s interim leader after discussions with European chip manufacturers Infineon, ST, and NXP the previous day.

Post-meeting, he noted that discussions with Nexperia underscored the EU’s necessity for new tipping laws as three lessons identified from the ongoing crisis: enhanced visibility of chip inventory in the pipeline, the importance of investing in chip supply despite costs, and the need for reserve inventories.

“Diversifying stockpiles and supplies is crucial to our collective resilience,” she stated.

The German Automotive Industry Association (VDA) expressed concern on Thursday that without a swift resolution to the situation at Nexperia, it could lead to “significant production restrictions and even suspensions in the near future.”

Businesses in the UK are likely to be impacted as well. Nexperia manufactures some of its chip wafers at a plant established by Dutch company Philips in Manchester.

Previously, Nexperia owned another factory in south Wales but was blocked by the UK government from completing its acquisition of the Newport wafer factory due to national security concerns, given its ultimate Chinese ownership. Subsequently, US semiconductor firm Vishay Intertechnology acquired the factory in November 2023.

Wingtech has yet to respond to requests for comments.