Not so long ago, nearly all chips in Chinese cars relied on manufacturing by companies like Texas Instruments and Germany’s Infineon. According to industry sources, the usage rate of homemade chips has now risen to about 15% and is set to increase further.
Last week, the United States launched an investigation into China’s production of chips made with mature technology commonly used in sectors such as automobiles and defense. U.S. Trade Representative Katherine Tai said there was evidence that China used “a wide range of anti-competitive and non-market measures” to achieve self-sufficiency, and the Commerce Department said it had received subsidies. He said low-cost Chinese chip makers could flood the global market, pushing down prices.
The Chinese government has made little secret of its industrial policy, arguing that controlling the inner brains of the world’s most important consumer product is too important to be left to market forces. The company has set goals for domestically produced chips and is supporting domestic chipmakers through a $47 billion state semiconductor fund launched in May.
Foreign companies in the automotive chip business, with annual sales of more than $80 billion, are faced with the choice of producing more in China or cutting sales. Many are choosing the former, upending the global supply chain for lean and efficient chips.
Habib Ilan, CEO of Texas Instruments, said at an investor briefing in December, “If the world wants to decouple, it can do China for China and non-China for non-China.” ” he said. That way we can continue to maintain this diverse supply chain. ”
The United States and Europe are also moving toward domestic production of semiconductors. The 2022 U.S. law passed under President Biden would provide tens of billions of dollars in subsidies.
Industry executives said much of the automotive integrated circuits China makes are low-end general-purpose chips and that full self-sufficiency will take years. Still, China’s progress shows how much progress it can make in producing items previously dependent on the United States, Europe, and Japan.
“It would be very foolish to underestimate the competitiveness of the Chinese,” said Handel Jones, founder of International Business Strategies, a consulting firm that has worked with Chinese semiconductor companies. Designed and manufactured in China for the Chinese market. ”
Semiconductors have become one of the key battlegrounds in the US-China technology competition for both commercial and national security reasons. In recent weeks, the two countries have been engaged in a tit-for-tat sanctions battle over high-end chips and raw materials.
The rise of Chinese car chips is not just about government fiat currency. The concentration of the world’s largest EV manufacturing industry in China acts as a gravitational pull for anyone manufacturing EV parts.
Today’s gas-powered cars can contain more than 700 chips to power automatic doors, run entertainment systems, control the brakes, and perform many other tasks. In many cases, EVs require more than twice that number of chips. These chips typically use mature or “legacy” technology.
Semiconductors used in automotive applications will account for about 15% of the $530 billion semiconductor market in 2023, up from 8% in 2020, according to researcher Gartner. In addition to long-established manufacturers in the United States, Europe, and Japan, Qualcomm and Nvidia are also entering the market with the aim of creating autonomous driving systems.
U.S. chip export restrictions to China generally do not affect legacy chips. However, Beijing still prefers self-sufficiency. China is buying up machines that can produce these general-purpose chips, and by 2024 it has become the world’s largest purchaser of semiconductor manufacturing equipment.
Earlier this month, China’s government-backed Automobile Association warned companies not to buy U.S.-made processing machines, saying they were unsafe and unreliable, but this was the first time such a message had been issued publicly.
In early 2024, officials from China’s Ministry of Industry and Information Technology asked major automakers to report how many locally produced chips they bought each quarter, according to people briefed on the matter.
China leads the world in the deployment of electric and plug-in hybrid vehicles. Of the 20 million cars sold in China from 2024 to November, about half fell into one of these two categories.
That gives local semiconductor manufacturers an opportunity. The government-backed Automotive Chip Association, founded in 2020, had its first booth at the China Luxury Automotive Exhibition in April, displaying dozens of Chinese-made processors.
Chinese automakers say they prefer sourcing locally to ensure stable supply. Others find it easier to work from home with chip designers who can move quickly and are willing to create customized products. This is important because Chinese automakers are used to updating their EV lineups frequently, like smartphones, rather than every five years like gas-powered cars.
The first Chinese chips to gain market share were analog and power semiconductors that control simpler components such as wipers. Western rivals will begin to feel the squeeze as more advanced locally produced chips are tested and certified, analysts say.
Beijing-based Horizon Robotics, a rival to Nvidia and Qualcomm in automotive chips, said it had 25 automaker customers as of June 2024, up from 14 in 2021. Horizon said domestic suppliers are “better able to respond to the demands and preferences of Chinese customers.” . ”
A teardown conducted by UBS researchers in 2023 revealed that all of the power semiconductors in the BYD Seal, a popular sedan in China, were sourced from Chinese suppliers.
Wilmington, Mass.-based Analog Devices said in September that it would lose some market share in 2023 as China pushes toward domestically produced chips, but that the situation will stabilize in 2024. The market is here to stay,” said Michael Lucarelli, the company’s vice president of investor relations.
For now, Western players are trying to maintain their dominance in China. Switzerland-based STMicroelectronics will form a joint venture with a state-owned company in 2023 to produce chips for the automotive and industrial power sectors, while Dutch chipmaker NXP will start producing processors for Chinese automakers in November. He announced that he wanted to localize it.
Chief Executive Kurt Sievers said the market has reversed from when Western automakers were NXP’s main customers and the company sold its products to Chinese customers.
Now that Chinese automakers are leading the way in self-driving cars and electrification, “we’re starting to use self-driving cars, leverage them as a major customer, and eventually start selling them to Western countries.” said Sievers.
Email Liza Lin (liza.lin@wsj.com) and Raffaele Huang (raffaele.huang@wsj.com).
