The semiconductor industry is a crucial sector that plays a significant role in the global economy. Recently, there has been a shift in focus as advanced semiconductor companies in the US and allied countries are pulling back from China. However, a less glamorous sector of the chip market is turning even more towards the world’s second-biggest economy.
In a recent article by Bloomberg, it was highlighted how important China is to the largest players in automotive chipmaking. With sales suffering due to inventory gluts and slowing adoption in the West for electric vehicles, China’s market is proving to be a saving grace for these companies. Kurt Sievers, CEO of NXP Semiconductors NV, noted the staggering growth of EV sales in China, contrasting it with weakness in industrial markets in Europe and the Americas. Similarly, Infineon Technologies AG CEO Jochen Hanebeck mentioned that China’s resilience has helped the German chipmaker’s bottom line, while Texas Instruments Inc. reported a 20% increase in business across all five of its product markets in China.
However, deepening engagement with China could become a double-edged sword for these chipmakers as geopolitical tensions expand into the automotive arena. The European Union and the US have imposed tariffs on Chinese EV imports, and Beijing has lodged a complaint with the World Trade Organization disputing the EU decision. Additionally, there are concerns about supplies of mature, legacy chips being under scrutiny in Washington and Brussels.
The tensions over technology between the US and China have primarily focused on Washington’s efforts to curb Beijing’s access to leading-edge semiconductors. This has prompted China to push for technological self-sufficiency, particularly in automotive chips. Since automotive chips do not depend on the latest manufacturing processes and are largely unaffected by US export controls, China has the opportunity to ramp up their development and potentially displace foreign chipmakers in the future.
According to researchers John Lee and Jan-Peter Kleinhans, the expansion of China’s EV industry is boosting the development of Chinese vendors of automotive chips, making Chinese carmakers more competitive. This could have major impacts on European firms and national economies. The automotive chips market, forecasted to be worth $150 billion by 2030, is an area where Europe excels due to increasingly sophisticated technology that turns cars, especially EVs, into computers on wheels.
China is not only the largest producer but also the biggest market for EVs. However, Chinese manufacturers mostly rely on foreign companies for the multiple chips required in modern high-end cars. This reliance presents an opportunity for companies like Infineon, NXP, STMicroelectronics, Renesas Electronics, and Texas Instruments, which earn a significant portion of their revenue from China.
The Chinese government has urged EV firms like BYD and Nio to increase their purchases from local auto chipmakers, leading to the construction of new chip fabrication plants in China, specifically for automotive chips. This has raised concerns in the European Commission about the potential loss of market share for European chipmakers in China.
European auto chipmakers are deepening partnerships with Chinese entities as an insurance policy in the Chinese market. However, there are concerns about the EU or the US acting against China’s capacity to produce its own autochips. While chipmakers are aware of the dangers, they have adopted varying degrees of concern.
In conclusion, the semiconductor industry is facing challenges and opportunities as it navigates the complex landscape of global trade and technological advancements. The shift towards China in the automotive chip market highlights the importance of strategic partnerships and innovation in staying competitive in the ever-evolving semiconductor industry. As China continues to invest in chip manufacturing capacity, it may only be a matter of time before it catches up with foreign chipmakers, posing a significant challenge to the established players in the industry.