By Ben Klayman and Stephen Nellis
(Reuters) -A federal judge in Michigan on Friday denied a request to issue an emergency order forcing NXP (NASDAQ:NXPI) Semiconductors to provide chips to a supplier of automaker Stellantis.
The global automotive chip crunch started late last year, when automakers and their suppliers failed to understand they needed to put in orders months ahead of time as the consumer electronics industry surged and took up chipmaking capacity.
Then this year, a series of natural disasters at automotive chip plants deepened the shortage; NXP cites weather-related stoppages at its Texas plant in a dispute with Stellantis supplier JVIS-USA.
JVIS had alleged that without the chips it has ordered, there will be an "imminent shutdown" of a Detroit factory that makes Stellantis' profit-generating Jeep Grand Cherokee. NXP responded that it has no direct contractual relationship with JVIS-USA obligating it to send the chips.
U.S. District Court Judge Stephanie Dawkins Davis denied JVIS's request for an emergency order to force shipment of the chips, saying NXP had shown it does not have them available. She also said issuing an order in favor of JVIS could harm other companies desperate for chips and result "in a line at the courthouse" of other cases.
"'Shortage' might be too soft of a word," Dawkins Davis said while delivering her decision. "There's really a drought of the semiconductors that are needed."
JVIS-USA is a supplier of an electronic assembly that helps control ventilation systems for the Grand Cherokee, the Dodge Challenger and Charger, and the Chrysler 300.
JVIS does not buy chips directly from NXP, instead getting them through layers of suppliers and distributors. But it had alleged that NXP created an oral contract with it during a Zoom call that included NXP, JVIS, a circuit board supplier to JVIS and a chip distributor. NXP denied that claim, saying the call was an industry-standard status update from a distributor.
In a lawsuit filed on March 31 in state court in Michigan that was later moved to the U.S. District Court for the Eastern District of Michigan, JVIS alleged that NXP later reduced the number of chips it would deliver by tens of thousands from what JVIS had expected.
JVIS had alleged the shortfall will cause it to stop production by April 19, which in turn will cause a shutdown of Stellantis production at its Jefferson North Assembly Plant in Detroit within the first 10 days of May.
Stellantis declined to comment after the ruling on the potential impact of a JVIS shutdown.
Separately on Friday, Stellantis said the global chip shortage forced it to idle its assembly plants in Belvidere, Illinois; Windsor, Ontario; and Toluca, Mexico, through the rest of April and its Warren, Michigan, truck plant through the end of May.
An NXP spokeswoman declined to comment on the decision.
During the court hearing, NXP attorney Marc Collier said the company had scant supplies after a February freeze in Texas cost it five weeks of production time and 700,000 lost or delayed chips and was going to great lengths to deliver what it could.
The distributors JVIS works with have "ordered a box of cereal from us, and we are sending it one cornflake at a time. As soon as it comes off the factory line, it goes on a FedEx (NYSE:FDX) plane," Collier said during the hearing.
JVIS had alleged it asked NXP for 70,000 chips for the Jeep plant in the second quarter. In late February, JVIS alleged, NXP and a chip distributor said during the Zoom call that they would supply to JVIS 42,000 chips for the Detroit plant.
JVIS alleged the call created an oral contract, submitting as evidence a photograph of a computer screen with numbers on it. JVIS alleged NXP and the chip distributor reduced its order to 27,000 chips in late March. Judge Dawkins Davis said that Michigan law requires written contracts for sales over $1,000 and that the screenshot evidence was “murky at best."